In News: The Reserve Bank of India (RBI) will transfer Rs 30,307 crore as surplus to the government for fiscal ended March 2022 down 69% from the Rs 99,126 crore in the year ended March 2021 and lower than the Rs 74,000 crore budgeted by the government for the current fiscal.
The fall in the transferable surplus is because of the increased interest the RBI had to pay banks which parked their surplus liqudity in the reverse repo window
Background
RBI’s Earning:
Returns earned on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.
Interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight.
Management commission on handling the borrowings of state governments and the central government.
RBI’s Expenditure:
Printing of currency notes and on staff, besides the commission it gives to banks for undertaking transactions on behalf of the government across the country, and to primary dealers, including banks, for underwriting some of these borrowings
The Surplus Distribution Policy of RBI that was finalized is in line with the recommendations of the 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 Committee’s recommendations were based on the consideration of the role of central banks’ financial resilience, cross-country practices, statutory provisions and the impact of the RBI’s public policy mandate and operating environment on its balance sheet and the risks involved.
In view of the RBI’s function as a lender of last resort, it needs to maintain some Contingent Risk Buffer (CRB) to insure the economy against any tail risk of financial stability crisis.
The Jalan Committee recommended that the CRB needs to be maintained at a range of 5.5% to 6.5% of the RBI’s balance sheet.
The surplus transfer policy is now formula-based and thus transparent, which is an important departure from the past.
The formula-based CRB will take care of the risk provisioning and the central board of RBI will decide on the level of risk provisioning.
