On 22nd May 2024, the Central Board of Directors of Reserve Bank of India (RBI) approved the transfer of Rs 2,10,874 crore (~Rs 2.11 Lakh crore) as surplus to the Central government for the fiscal year 2023-24 (FY24). This is around 141% higher than surplus transferred in FY23 (Rs 87,416 crore.).
- This is above the budgeted figure of Rs 1.50 lakh crore in the Interim Budget for FY2025 under dividends and profits, which includes dividends from Public Sector Undertaking (PSUs).
Note: This decision was taken during the 608th meeting of the Central Board of Directors of RBI held at Mumbai, Maharashtra under the Chairmanship of Shaktikanta Das, Governor of RBI.
How is this surplus arrived?
i.The surplus transfer for FY24 is determined by the Economic Capital Framework (ECF) adopted by RBI, based on recommendations from the Expert Committee chaired by Dr. Bimal Jalan.
ii.The committee suggested maintaining the Contingent Risk Buffer (CRB) within a range of 6.5 to 5.5% of the RBI’s balance sheet. Despite challenges posed by the Covid-19 pandemic during accounting years 2018-19 to 2021-22, the CRB was maintained at 5.50%.
- With economic growth rebounding in FY 2022-23, the CRB was raised to 6.00%, further increased to 6.50% for FY 2023-24, reflecting the economy’s resilience.
- Consequently, the RBI board approved the above transfer.
iii.Other reason for this surplus income includes a notable rise in interest earnings from RBI’s foreign exchange assets, influenced by US Federal Reserve’s aggressive interest rate hikes.
Key Points:
i.RBI transfers surplus income to the central government annually, generated from investments, fluctuations in valuation of dollar reserves, and revenue from currency printing fees.
ii.Higher dividend aids Central Government in achieving fiscal deficit target of 5.1% of Gross Domestic Product (GDP) for FY25 and provides greater spending capacity for the government.
iii.Increased CRB ensures RBI’s capability to handle unforeseen situations arising from depreciation of securities or monetary/exchange rate policy risks.
Key Participants:
Deputy Governors Swaminathan Jankiraman, Michael Debabrata Patra, M Rajeshwar Rao and T Rabi Sankar; Ajay Seth, Secretary, Department of Economic Affairs (DEA), and Dr. Vivek Joshi, Secretary, Department of Financial Services (DFS), Ministry of Finance.
RBI Surplus Transfer:
RBI transfers the surplus to the government after making provisions for reserves and retained earnings. RBI transfers the surplus, in accordance with Section 47 (Allocation of Surplus Profits) of the RBI Act, 1934.
Recent Related News:
i.According to the article titled “India @ 100” published in Reserve Bank of India (RBI) Bulletin July 2023 published by RBI’s Economic Research Department, India needs to achieve an average annual real GDP growth rate of 7.6% over the next 25 years to become a developed nation by 2047-48.
ii.RBI released a notification addressing all the banks regarding the inclusion of ‘NongHyup Bank’ in the Second Schedule to the RBI Act, 1934.
About Reserve Bank of India (RBI):
i.It was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.
ii.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
iv.Thus, 2023 marked the 75th year of public ownership of RBI and its emergence as a national institution.
