Facts for Prelims (FFP)
Context: The Reserve Bank of India (RBI) has tripled its payout to the Indian government, deciding to transfer ₹87,416 crores as surplus for the accounting year 2022-23 (nearly three times the ₹30,307 crores transferred in the previous fiscal year)
- Also, RBI has increased the Contingency Risk Buffer to 6%, up from 5% in the previous year.
About RBI’s surplus transfer to the government:
|Definition||RBI’s surplus transfer to the government refers to the transfer of excess income over expenditure by the Reserve Bank of India (RBI). This transfer is mandated by the Reserve Bank of India Act of 1934 and is done annually.|
|RBI’s Earning||Returns earned on foreign currency assets (such as bonds, treasury bills) and deposits with other central banks; Interest on holdings of local rupee-denominated government bonds; Management commission on handling the borrowings of state governments and the central government.|
|RBI’s Expenditure||Printing of currency notes, Commission was given to banks and primary dealers for underwriting borrowings, contingency funds and staff expenses.|
|Surplus Transfer Policy||Finalized based on the recommendations of the Bimal Jalan committee.|
|Reasons for the transfer||Perception of RBI being overcapitalized compared to other central banks; The excess capital could be put to productive use by the government; Higher dividends of RBI from public sector banks and oil marketing companies; Increased earnings on investments, valuation changes on dollar holdings, revaluation of forex assets|
|Implications||Helps government in bank recapitalization during economic slowdown; Enables government to stimulate the economy; Helps meet the fiscal deficit target|
|About Contingency Risk Buffer||It refers to a reserve maintained by the RBI to protect the economy against potential financial stability crises or unforeseen risks. It serves as a cushion to absorb any adverse shocks.
In view of the RBI’s function as a lender of last resort, it needs to maintain some Contingent Risk Buffer (CRB) to insure the economy against any tail risk of financial stability crisis. The Bimal Jalan Committee recommended that the CRB needs to be maintained at a range of 5.5% to 6.5% of the RBI’s balance sheet.