There’s a bonanza awaiting the next government even before it is sworn in: A record surplus transferred by the Reserve Bank of India (RBI) to the Union government from its operations in 2023-24. At just above ₹2.1 trillion, the surplus (note, not dividend, since RBI is not a commercial entity) is the highest-ever payout by the central bank, and more than double the previous year’s ₹86,416 crore. This is good news.
Especially since the transfer has been done after beefing up RBI’s contingency risk buffer (CRB) to the upper end of the band (5.5-6.5% of its balance sheet) suggested by the 2019 Bimal Jalan committee. This panel, tasked with setting out an ‘economic capital framework’ for the central bank, had laid down clear guidelines on how RBI’s surplus should be apportioned between transfers to its reserves and to its owner, the government.
To the extent that the latest transfer is in line with the Jalan panel’s recommendations, this should ordinarily be reason to cheer. Except that there is a fine line between a central bank’s surplus and that of a corporate entity. It is important to keep this in mind for any analysis of RBI’s numbers.
The very use of terms such as ‘surplus’ rather than ‘profit’ and ‘income and expenditure’ instead of ‘profit and loss’ (for a statement) in the context of the central bank, in contrast with commercial banks, reflects this difference. It is precisely for this reason that we must not rest content with only the headline number, but look for factors that contributed to the sharp rise in RBI’s surplus. Unfortunately, we are up against a blank wall on this.
RBI’s Wednesday press release on the 608th meeting of its central board that approved the ₹2.1 trillion plus transfer to the Centre’s coffers has no details beyond this terse statement: “As the economy remains robust and resilient, the Board has decided to increase the CRB to 6.50 per cent for FY 2023-24. The Board thereafter approved the transfer of ₹2,10,874 crore as surplus to the Central Government for the accounting year 2023-24.”
Presumably, the rest is for us to guess. At least until the central bank’s annual report and financial statements with detailed ‘notes to the accounts’ are published. In the interim, we have a host of reasons being advanced to explain the dramatic leap. But nothing concrete to go by.
The best we can do is assume the bulk of RBI’s surplus came from where it did the previous year: Income from foreign sources as well as domestic sources, mainly on account of a drop in net outgo of interest under its Liquidity Adjustment Facility—which includes its marginal standing and standing deposit windows—due to lower surplus liquidity, and interest income on loans to Central and state governments. But this is not enough.
What RBI earns and spends has macro-economic ramifications, as its operations are—or should be—carried out entirely in pursuit of monetary stability and economic growth, as per its mandate, and not profits. If its ‘super-normal’ surplus is mainly from large foreign currency holdings or transactions driven by a profit motive, as some have hinted, it would need to disclose the nature of these dealings.
Were they speculative? Clearly, a big no-no for any central bank. A brief statement explaining its largesse, a windfall for the Centre, would have gone a long way to quell speculation over it. Hopefully, RBI will act on our suggestion next year.
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