RBI’s Record Surplus Transfer to the Centre for FY24

RBI’s Record Surplus Transfer to the Centre for FY24

Sub: Economy

Sec: Monetary Policy 

Key Highlights:

• Record Surplus Transfer:
  • The Reserve Bank of India (RBI) has approved a transfer of ₹2,10,874 crore as surplus to the Union government for the financial year 2023-24.
  • This transfer is more than double the ₹87,416 crore transferred in FY23.
• Economic Capital Framework (ECF):
  • The surplus has been determined based on the Economic Capital Framework adopted by the RBI on August 26, 2019.
  • The ECF was developed following recommendations from the Expert Committee to review the RBI’s capital framework.
• Contingent Risk Buffer (CRB):
  • The RBI has decided to increase the Contingent Risk Buffer to 6.50% for 2023-24, up from 6% the previous year.
• Implications for Fiscal Consolidation:
  • The significant surplus transfer is expected to aid the Union government’s fiscal consolidation efforts.
  • Experts noted that the larger dividend was due to higher RBI income from both domestic and foreign assets, leading to increased profits.
• Future Outlook:
  • The transfer supports the government’s fiscal consolidation program, with the final budget anticipated in July.
  • Economists view this as a positive step towards maintaining fiscal discipline and managing the fiscal deficit.

Conclusion:

The RBI’s record surplus transfer of ₹2,10,874 crore to the Union government for FY24 marks a significant financial boost. The transfer, which more than doubles the previous year’s amount, is expected to support fiscal consolidation efforts, reflecting higher income from the RBI’s domestic and foreign assets.

The increase in the Contingent Risk Buffer further strengthens the RBI’s financial resilience, ensuring continued stability in the economic framework.

How the RBI Generates Surplus

RBI’s Income Sources:

• Interest on Holdings:
• Domestic Securities: Interest earned on government securities held by the RBI.
• Foreign Securities: Interest earned on foreign assets and securities.
• Fees and Commissions:
• Charges for various services provided to the government and financial institutions.
• Profits from Foreign Exchange Transactions:
• Gains from buying and selling foreign currencies.
• Returns from Subsidiaries and Associates:
• Income from the RBI’s investments in its subsidiaries and associated organizations.

RBI’s Expenditure:

• Printing of Currency Notes:
• Costs incurred in the production and supply of currency notes.
• Payment of Interest:
• Interest paid on deposits and borrowings.
• Salaries and Pensions:
• Compensation and retirement benefits for RBI staff.
• Operational Expenses:
• Costs of running the RBI’s offices and branches.
• Provisions for Contingencies and Depreciation:
• Funds set aside to cover unforeseen expenses and asset depreciation.

 Surplus Calculation:

• The surplus is the difference between the RBI’s total income and its total expenditure.
• After accounting for reserves and retained earnings, the remaining surplus is transferred to the government.

Legal Framework for Surplus Transfer:

• Section 47 of the Reserve Bank of India Act, 1934:
  • This section governs the allocation of surplus profits of the RBI.
  • It mandates that the surplus, after provisions, must be transferred to the Central Government.