RBI Board Clears Record Surplus Transfer

The RBI Central Board approved a record surplus transfer of ₹2.69 lakh crore to the Central Government for the financial year 2024–25.

The surplus was approved based on the revised Economic Capital Framework (ECF).
The Contingent Risk Buffer (CRB) was raised to 7.5% from 6.5% of the RBI’s balance sheet.
The dividend is 27% higher than last year’s transfer of ₹2.11 lakh crore.
The Transfer has been made under the provisions of RBI act 1934.
- Section 47 of the RBI Act, 1934 mandates that any profits made by the RBI from its operations be sent to the Centre.

RBI Central Board

The Central Board of the Reserve Bank of India (RBI) is the apex decision-making body of the central bank. It oversees RBI’s general affairs and policy formulation.

Composition: It is a 21 member body.

Headed by the RBI Governor.
Includes up to four Deputy Governors.
Up to ten Directors nominated by the Central Government from various fields.
Two government officials from the Finance Ministry , nominated to the Board.
Four regional directors representing different local boards.

Functions

Frames policies related to monetary stability, currency issuance, and financial regulation.
Approves the annual budget, dividend, and surplus transfer.
Guides the RBI on strategic and operational decisions in alignment with national interest.

About RBI Surplus

RBI’s surplus transfer refers to the excess income over expenditure that the central bank shares with the government.
It forms part of the non-tax revenue of the Centre and is influenced by RBI’s investment earnings and forex operations.
- The transfer is made after provisions for risks like currency fluctuations, interest rate changes, and operational uncertainties.

Bank for International Settlements (BIS)

It is an international financial institution acting as banks for central banks.
Objective: It promotes monetary and financial cooperation globally. .
Establishment: 1930
Headquarters: Basel, Switzerland

The robust surplus was driven by record forex sales ($399 billion) to defend the rupee and higher income on foreign securities due to global interest rate hikes.
Foreign currency assets accounted for 64.4% of RBI’s total assets, primarily held in securities and deposits with foreign banks and Bank for International Settlements (BIS).
Despite expectations of a ₹3 lakh crore transfer, the final figure was lower due to the higher CRB threshold (7.5%).

RBI’s Income and Expenditure Sources

Income Sources of RBI

Expenditure of RBI

Interest Income: Earnings from domestic & foreign govt securities

Forex Transactions: Gains from buying/selling foreign exchange (e.g., dollar sales)

Revaluation Gains: From exchange rate-led appreciation of foreign assets

Deposits with Banks: Interest from deposits with foreign central banks & BIS

Lending Operations: Interest from short-term lending like LAF

Fees and Charges: Commissions for govt transactions & bond handling

Interest Paid: On reverse repo operations and MSS bonds

Currency Printing: Costs related to printing & managing notes

Establishment Costs: Salaries, pensions & admin expenses

Provisions & CRB: Allocations to Contingent Risk Buffer and other reserves

Depreciation: On buildings, IT systems, and infrastructure

Significance of the Transfer

Surplus Transfer

The ₹2.69 lakh crore transfer strengthens the Centre’s fiscal position and provides additional fiscal space.
It may reduce the fiscal deficit by 20 basis points, from the budgeted 4.4% to approximately 4.2% of GDP.
Alternatively, the surplus can finance additional government spending of around ₹70,000 crore, depending on priorities.

Impact of RBI Transfer on Economy

Boosts Government Liquidity: The large transfer improves government liquidity, enabling timely expenditure on welfare, infrastructure, and subsidies.
Eases Market Borrowing Pressure: With improved revenue, the Centre may reduce or defer market borrowings, lowering bond yields and easing pressure on interest rates.
Enhances Fiscal Confidence: A stronger fiscal outlook improves India’s macroeconomic credibility and may support better sovereign credit ratings and investor confidence.
Monetary Stability in Uncertain Times: Higher CRB strengthens RBI’s buffers against financial instability, reaffirming its role as Lender of Last Resort (LoLR).

Economic Capital Framework (ECF)

The ECF is a risk management framework that determines the capital the RBI should hold to cover monetary, credit, operational, and contingency risks.
Purpose: It ensures that the RBI maintains sufficient capital while also enabling surplus transfers to the government as mandated by RBI act.
Evolution: The ECF was developed in 2014-15, and was operationalised in 2015-16.
- Revised ECF was introduced in 2019 following recommendations by the Bimal Jalan Committee amid a debate on the ideal level of reserves.
Key Component: The Contingent Risk Buffer (CRB) is a critical element, fixed within a defined percentage of RBI’s balance sheet.

Contingent Risk Buffer (CRB)

The Contingent Risk Buffer (CRB) is a specific reserve fund maintained by the Reserve Bank of India (RBI).
It is designed to manage unexpected and unforeseen financial contingencies.
Acts as a financial safeguard to address extreme but plausible risks such as,
- Depreciation in the value of securities held by the RBI.
- Losses due to monetary policy operations or interest rate fluctuations.
- Systemic financial risks, including banking or market disruptions.
It helps to maintain stability during macro-financial shocks.

How is the CRB maintained ?

RBI is required to maintain the CRB as a percentage of its total balance sheet
The Central Board of the RBI determines the required CRB percentage each fiscal year.
As of FY 2024-25, the CRB has been increased to 7.5% of the balance sheet.

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