RBI Fund Transfer
- May 21, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
RBI Fund Transfer
The Reserve Bank of India (RBI) on Friday said its board had approved the transfer of ₹30,307 crore as surplus to the Union government for the fiscal year 2021-22, while deciding to maintain the Contingency Risk Buffer at 5.50%.
- 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.
- RBI transfers the surplus – that is, the excess of income over expenditure – to the government, in accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934.
- 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.
Mechanism of Surplus transfer:
The Surplus Distribution Policy of RBI that was finalized is in line with the recommendations of the Bimal Jalan committee.
- The RBI has decided to set the CBR level at 5.5% of the balance sheet, while transferring the remaining excess reserves to the government.
- If CBR is below the lower bound of requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any) transferred to the Government.
Bimal Jalan committee that was formed by the RBI, in consultation with the Government, to review the extant Economic Capital Framework of the RBI:
- The panel recommended a clear distinction between the two components of the economic capital of RBI i.e. Realized equity and Revaluation balances.
- Revaluation reserves comprise of periodic marked-to-market unrealized/notional gains/losses in values of foreign currencies and gold, foreign securities and rupee securities, and a contingency fund.
- Realized equity, which is a form of a contingency fund for meeting all risks/losses primarily built up from retained earnings. It is also called the Contingent Risk Buffer (CBR).
- The Jalan committee has given a range of 5.5-6.5% of RBI’s balance sheet for Contingent Risk Buffer.