RBI to transfer highest-ever surplus of Rs 1.76 lakh cr to govt; all you need to know about central bank's excess capital

In a major relief to the government, the Reserve Bank of India (RBI) on Monday approved the transfer of a record Rs 1.76 lakh crore dividend and surplus reserves to the exchequer. The RBI made the decision after the central bank’s board accepted the recommendation of a high-level panel headed by its former governor Bimal Jalan on the transfer of excess reserves to the government. Governor Shaktikanta Das-led RBI central board on Monday gave its nod for transferring to the government a sum of Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF), the apex bank said in a statement. Generation of RBI surplus capital The RBI’s income is generated from the interest on the securities it holds. In 2017-18, the largest component of expenditure was a provision of about Rs 14,200 crore for the contingency fund (CF), said a report in The Times of India. [caption id=“attachment_5684541” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] The reason behind the record surplus of Rs 1.76 lakh crore is because last year the RBI intervened in both markets — the forex markets and money markets, said the report. How does surplus transfer benefit govt? The excess reserve transfer is in line with the recommendation of the Bimal Jalan-led panel constituted to decide the size of capital reserves that the central bank should hold. The government was represented by Finance Secretary Rajiv Kumar in the panel which finalised its report on 14 August by consensus. The receipts from the RBI will give a fillip to the government’s efforts to boost the economy from a five-year low. Finance Minister Nirmala Sitharaman had last week announced a slew of measures to prop up growth even as the government tried to stick to the target of keeping fiscal deficit at 3.3 percent of the GDP. The additional cash will now give the Centre more headroom for stimulating the economy. RBI, govt spat over excess cash The Narendra Modi government and the RBI under its previous governor Urjit Patel had been at loggerheads over the optimum level of surplus capital with the central bank. As a result, the RBI in its crucial November 2018 board meeting decided to form a committee to review the ECF for the RBI. However, Patel quit before the committee could be formed. Subsequently, the panel was constituted in consultation with new RBI Governor Shaktikanta Das on 26 December, 2018. Since 2013-14, the RBI has been paying 99 percent of its disposable income to the government, which is battling to rein in deficits. Surplus capital transfer in the past This is the second time this year, the RBI agreed to transfer its surplus cash to the government. In February this year, the RBI had paid Rs 28,000 crore as interim dividend to the government ahead of the general elections. Last year, it paid Rs 10,000 crore as interim dividend in March and a final dividend of another Rs 40,000 crore in August. In August 2017, the RBI had paid Rs 30,659-crore dividend, down from Rs 65,876 crore in the previous year. The government has been seeking about Rs 27,000 crore in dividend withheld in the past two financial years. In 2014, RBI gave Rs 52,679 crore surplus capital with it to government and in 2015, the amount rose to Rs 65,896 crore, said a report in The Indian Express. What the rule says The central bank transfers its surplus amount to the government, under Section 47 of the RBI Act, 1934. Section 47 of the Act says: “After making provision for bad and doubtful debts, depreciation in assets, contribution to staff and superannuation fund and for all matters for which provision is to be made by or under the Act or which are usually provided by bankers, the balance of the profits shall be paid to the central government.” Govt estimate on surplus with RBI, other banks The Union Budget 2019-20 had pegged dividend or surplus of the RBI, nationalised banks and financial institutions at Rs 1.06 lakh crore, up from Rs 74,140.37 crore realised in the previous fiscal. In 2017-18, Rs 40,659 crore was transferred in a dividend to the government. During the year (2016-17) of demonetisation, the RBI had transferred Rs 30,659 crore, less than half of the Rs 65,876 crore it had paid in 2015-16. The RBI follows July-June financial year and usually distributes the dividend in August after annual accounts are finalised. — With PTI inputs