RBI's money transfer to Government

Why is it in the news ?
  • The Reserve Bank of India (RBI) decided to transfer ₹1.76 lakh crore to the Centre including interim dividend of Rs. 28,000 crore paid in February.
  • The transfer is likely to address the precarious fiscal situation of the government to a great extent.
More in the news
    • The transfer includes ₹1.23 trillion of surplus for 2018-19 and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF).
    • The higher surplus is due to the long-term forex swaps and the open market operations (OMO) conducted by the central bank over the last fiscal.
    • The surplus transfer was finalized in line with the recommendations of the committee under former central bank governor Bimal Jalan.
    • RBI’s central board accepted all the recommendations of the committee.
    • The transferred money could be either used to provide fiscal stimulus to a sagging economy, reduce off-balance sheet borrowings or meet the expected shortfall in revenue collections.
    • Realized Equity:
      (1) The Jalan committee defines economic capital as a combination of realized equity and revaluation reserves.
      (2) RBI’s realized equity, which is a form of contingency fund for meeting all risks/losses primarily built up from retained earnings, currently stands at 6.8%.
      (3) The Jalan committee recommends it to be in the range of 6.5-5.5% of the balance sheet.
      (4) Keeping these recommendations in view, the central board has decided to set the realized equity level at 5.5% of the balance sheet, while transferring the remaining excess reserves worth ₹52,637 crore to the government.
    RBI's Income Sources
    • Returns earned on its foreign currency assets, which are either in the form of bonds and treasury bills of other Central Banks like Federal Reserve of USA.
    • The RBI earn by investing in top-rated securities across the World.
    • It also earns money by lending to banks for very short tenures, such as overnight repo.
    • It also claims a Management Commission on handling the borrowings of State Governments and the Central Government.
    • It also earns money through Open Market Operations, which it undertakes regularly to manage liquidity.
    Source
    The Hindu.



    Posted by Jawwad Kazi on 27th Aug 2019
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