RBI’s profit more than trebles in 2018-19 on lower expenses

Reserve Bank of India’s (RBI) profit for 2018-19 more than trebles to ₹1.76 trillion owing to lower expenditure and higher other income, which has enabled a higher surplus transfer to the government. On the other hand, the contingency fund, the central bank’s war chest for countering exchange and interest rate volatility, has shrunk by over 15% because of the new reserves transfer formula devised by the Bimal Jalan committee.

The RBI’s total expenditure declined 39.7% year-on-year (y-o-y) to ₹17,045 crore, primarily due to its decision of not making any provision for its contingency fund this year. The RBI accounts for provisions as part of its expenditure.

Simultaneously, other income rose nearly 20 times on a y-o-y basis to ₹86,199 crore after the central bank wrote back excess provisions from balance sheet to the profit and loss account. This was after the RBI’s central board had accepted the new economic capital framework prescribed by the Jalan committee report, which recommended transferring excess provisions of ₹52,637 crore to the government. Consequently, the contingency fund—a reserve created for meeting unexpected and unforeseen risks and contingencies, including depreciation in the value of securities or risks arising out of monetary/exchange rate policy operations—shrunk to ₹1.96 trillion in 2018-19 from ₹2.32 trillion in the previous fiscal year.

During the year, the central bank also made gains of ₹29,143 crore from foreign exchange transactions, of which ₹21,464 crore was due to the impact of using the weighted average cost method of computing the exchange gain. This method was used for the first time in 2018-19 to smoothen the uneven inflows during the year.

The RBI earned an additional ₹36,000 crore from open market operations (OMOs) this year over FY18. According to a report by India Ratings and Research, the surplus in banking system liquidity (approximately ₹1 trillion) has been driven by the RBI’s continued OMOs, aggregating ₹3.5 trillion in the 12 months ended 31 July, the forex swap window that brought in approximately ₹70,000 crore of foreign capital.

Interest income rose 44.62% to ₹1.06 trillion as on 30 June 2019, compared to ₹73,871 crore in the previous year. Net interest income from liquidity adjustment facility (LAF) and marginal standing facility (MSF) operations—two monetary policy tools—stood at ₹1,181 crore in 2018-19. This, the RBI said, was owing to an increase in net liquidity injection this year.

Meanwhile, the RBI’s balance sheet expanded 13.42% to ₹41 trillion in 2018-19. On the liability side, the increase was due to rise in notes issued, other liabilities and provisions, and deposits. According to the latest figures, as on 16 August the currency in circulation stood at ₹21.98 trillion, against ₹19.42 trillion a year ago. This, according to the central bank’s annual report, is indicative of key monetary variables gradually reverting to pre-demonetization levels.

The assets side increased due to the increase in domestic and foreign investments, and increase in gold holdings. Domestic assets constituted 28.03% of the total assets, while foreign currency assets and gold (including gold held in India) constituted 71.97% of total assets as on 30 June 2019, as against 23.18% and 76.82%, respectively, in the previous year.

This year, the RBI transferred ₹1.76 trillion to the Centre, which includes ₹1.23 trillion of profit for 2018-19 and ₹52,637 crore of excess provisions identified as per the new economic capital framework.