The Central Board of the Reserve Bank of India (RBI) on August 26, 2019 approved to transfer a sum of ₹1,76,051 crore to the Government of India (Government) comprising of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF).
What consists of RBI’s reserves?
a) Currency and gold revaluation account (CGRA),
b) The contingency fund (CF)
c) The investment revaluation account,
d) The asset development fund (ADF) and,
The CGRA reflects the unrealized gains or losses on the revaluation of forex and gold. It has grown at a compounded annual growth rate of 25% from 2010. The CGRA reserve was Rs.6.91 lakh crore in 2017-18. Last year the CGRA increased by 30.5% largely because of the depreciation of the rupee against the US dollar and due to an increase in the price of gold.
The Contingency Fund (CF) is a specific provision made for meeting unexpected contingencies from exchange rate operations and monetary policy decisions. The CF in 2017-18 was Rs 2.32 lakh crore. Last year the RBI intervened in both Forex markets and money market. In the forex markets RBI sold dollars at a huge profit and in the money markets it earned sizeable interest income from Bonds bought by it in the record Open Market Operations (OMO).
IRA reflects unrealized gain or loss on the mark-to-market of foreign security (IRA-FS) and Rupee securities (IRA-RS).ADF is created to meet internal capital expenditure and make investments in subsidiaries and associated institutions. However, the IRA and ADF constitute a small portion of the RBI’s reserves.
Revised Economic Capital Framework (ECF):
The Expert Committee to Review the Extant Economic Capital Framework of the Reserve Bank of India (Chairman: Dr. Bimal Jalan) has recommended a surplus distribution policy which targets the level of realized equity to be maintained by the RBI, within the overall level of its economic capital vis-à-vis the earlier policy which targeted total economic capital level alone. The committee recommended that entire surplus net income be transferable to the Government after maintaining the realized equity level at 6.5 percent to 5.5 per cent of balance sheet. The risk provisioning will be made to the extent necessary and only the residual net income (if any) transferred to the Government. The Central Board of RBI will decide on the level of risk provisioning.
