RBI Risk Provisioning
- May 28, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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RBI Risk Provisioning
Subject: Economy
Section: Monetary Policy
Context:
The six-fold increase in RBI’s transfer to the Contingency Fund reduced the central bank’s surplus transfer to the government.
Central bank’s risk provision:
The central bank’s main risk provision accounts are –
- Contingency Fund–
- This is a specific provision meant for meeting unexpected and unforeseen contingencies
- It includes among other things-depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the Reserve Bank.
- Section 47 of the RBI Act states-Profits or surplus of the RBI are to be transferred to the government, after making various contingency provisions.
- Currency and Gold Revaluation Account (CGRA)–
- It is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.
- Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
- Net balance in CGRA, varies with the size of the asset base, its valuation and movement in the exchange rate and price of gold.
- CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
- When CGRA is not sufficient to fully meet exchange losses, it is replenished from the CF.
- Investment Revaluation Account Foreign Securities (IRA-FS)–
- The unrealised gains or losses on revaluation in foreign dated securities are recorded in the Investment Revaluation Account Foreign Securities (IRA-FS)
- Investment Revaluation Account-Rupee Securities (IRA-RS)-
- The unrealised gains or losses on revaluation is accounted for in Investment Revaluation Account-Rupee Securities (IRA-RS).