• The Central Board of the Reserve Bank of India decided to transfer interim surplus of Rs 28,000 crore to the government.
• The move will bolster government’s finances.

• This is the second successive year the RBI will transfer an interim surplus.
• In August 2018, the RBI has decided to transfer Rs 50,000 crore of surplus to the government.
• While the RBI highlighted measures taken to boost credit flow to Micro, Small and Medium Enterprises (MSMEs), the Finance Minister pitched for consolidation in the banking sector.

How does a central bank generate profits?

• RBI print currency as well as issue deposits (or reserves) to commercial banks. Those are RBI's fixed liabilities.
• RBI buy financial assets from the market and also do not pay interest on our liabilities.
• However, the financial assets RBI hold, typically domestic and foreign govt bonds, do pay interest.
• So RBI generate a large net interest income simply because it pay nothing on virtually all its liabilities.
• So RBI earn a large surplus profit, more than all the public sector put together, because of the RBI’s role as the manager of the country’s currency.
• This belongs entirely to the country’s citizens. After setting aside what is needed to be retained as equity capital to maintain the creditworthiness of the RBI, the RBI board pays out the remaining surplus to the RBI’s owner — the government.