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RBI to transfer Rs 99,122 crore surplus to government

Topics Covered: Inclusive growth and issues arising from it.

RBI to transfer Rs 99,122 crore surplus to government:


Context:

The Reserve Bank of India (RBI) will transfer a surplus of Rs 99,122 crore to the government for the nine-month accounting period ended March 31.

  • The bank also decided to maintain the contingency risk buffer at 5.5 percent.

Significance of the move:

The transfer will help the government’s finances as the country battles a furious second coronavirus wave that has seen daily infections and deaths rise to a record level. The restrictions clamped to break the chain of infections have also put a question mark on the country’s economic recovery.

Provisions in this regard:

The RBI, established in 1935, operates according to the Reserve Bank of India Act of 1934. The act mandates that profits made by the central bank from its operations be sent to the Centre.

  • As the manager of its finances, every year the RBI also pays a dividend to the government to help with the finances from its surplus or profit.

A technical Committee of the RBI Board headed by Y H Malegam (2013), which reviewed the adequacy of reserves and surplus distribution policy, recommended a higher transfer to the government.

RBI’s Earning:

  • Returns earned on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.
  • Interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight.
  • Management commission on handling the borrowings of state governments and the central government.

RBI’s Expenditure:

Printing of currency notes and on staff, besides the commission it gives to banks for undertaking transactions on behalf of the government across the country, and to primary dealers, including banks, for underwriting some of these borrowings.

InstaLinks:

Prelims Link:

  1. About RBI.
  2. Management of Surplus.
  3. RBI’s earnings and expenditure.

Mains Link:

Discuss the mechanism under which RBI trasnfers surplus to the government.

Sources: the Hindu.