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Contingency Fund (CF) of the central bank

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Contingency Fund (CF) of the central bank:


Context:

The Reserve Bank of India (RBI) has retained a whopping amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund (CF) of the central bank.

  • As a result, the CF has swelled to a new high of Rs 264,034 crore.

Under what provisions does the central government receive money from the RBI?

As per Section 47 of the RBI Act, profits or surplus of the RBI are to be transferred to the government, after making various contingency provisions, public policy mandate of the RBI, including financial stability considerations.

  • The RBI’s transfer this year is as per the economic capital framework (ECF) adopted by the RBI board last year.

What is the Contingency Fund (CF)?

This is a specific provision meant for meeting unexpected and unforeseen contingencies.

  • This includes depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the Reserve Bank.

This amount is retained within the RBI.

RBI’s risk provision accounts:

The central bank’s main risk provision accounts are Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS). Together now they amount to Rs 13.88 lakh crore.

What’s the CGRA account?

The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.

  • Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
  • CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.

What are IRA-FS and IRA-RS accounts?

The unrealised gains or losses on revaluation in foreign dated securities are recorded in the Investment Revaluation Account Foreign Securities (IRA-FS).

Similarly, the unrealised gains or losses on revaluation is accounted for in Investment Revaluation Account-Rupee Securities (IRA-RS). 

InstaLinks:

Prelims Link:

About:

  1. IRA-FS and IRA-RS accounts.
  2. CGRA account.
  3. Contingency Fund (CF) of the central bank.

Section 47 of the RBI Act.

Sources: Indian Express.