The Reserve Bank of India on Monday approved a record ₹1.76 lakh crore payout to the government, which is more than double the ₹68,000 crore that it provided the previous year. RBI’s move however came under criticism from opposition parties who questioned the central’s bank’s autonomy. The ₹1.76 lakh crore transfer to the government includes ₹1.23 lakh crore as dividend to the government and ₹52,637 crore from its surplus capital. The dividend payment of ₹1.23 lakh crore includes interim dividend of ₹28,000 crore already transferred to the government in February.
Here are 10 things to know about RBI's ₹1.76 lakh crore transfer to govt:
1) RBI pays dividends to the government every year, based on the profits from its investments and printing of notes and coins.
2) The Reserve Bank of India, in consultation with the Government of India, had constituted an expert committee, under chairmanship of Bimal Jalan, to review whether the central bank was holding on to too much of its reserves. The committee reviewed the status and the need of the various reserves, risk provisions and risk buffers maintained by RBI. It also made a clearer distinction between the two components of RBI’s economic capital - realised equity and revaluation balances.
"Revaluation balances are highly volatile, and whose levels move autonomously depending on RBI’s discharge of its public policy objectives of maintaining price, financial and external stability, coupled with international market developments reflected in movements in the price of foreign assets, exchange rate, interest rate and gold price," the Bimal Jalan committee said.
3) The central board of RBI accepted all the recommendations of the Bimal Jalan committee on its economic capital framework and finalised the central bank’s accounts for 2018-19 using the revised framework to determine risk provisioning and surplus transfer. The RBI follows the July to June, 12 month calendar.
4) The Bimal Jalan committee recommended that RBI should keep 5.5% to 6.5% of its total assets as the contingency risk buffer (CRB) to meet any emergency fund requirements and transfer the remaining funds to the government.
5) Contingent Risk Buffer or CRB is a component of RBI’s economic capital required to cover its monetary and financial stability, credit and operational risks. This risk provisioning is made primarily from retained earnings of the central bank.
6) The RBI said that is current contingency risk buffer stood at 6.8% of the balance sheet. So there was an excess of risk provisioning to the extent of ₹11,608 crore at the upper bound of CRB (6.5%) and ₹52,637 crore at the lower bound of CRB (5.5%).
7) The RBI’s central board decided to maintain it at 5.5% of balance sheet and excess risk provisions of ₹ 52,637 crore were written back (or transferred to the government).
8) An important point to note is that the Bimal Jalan committee drew a distinction between what part of the RBI’s surplus capital can be shared and what cannot. The committee said realised equity of RBI could be used to meet all risks and losses as they were built over a period of time through retained earnings, while revaluation gains were unrealised and hence not distributable.
9) Or in other words, the committee said, that a shortfall, if any, in revaluation balances vis-a-vis market risk provisioning requirements could be met through increased risk provisioning from net income, the reverse, i.e., the use of surplus in revaluation balances over market risk provisioning requirements for covering shortfall in provisions for other risks is not permitted.
10) Coming back to the dividend part, the RBI said that while the revised framework would allow the central bank's economic capital levels as on June 30, 2019 to lie within the range of 24.5% to 20% of balance sheet (depending on the level of realized equity maintained and availability of revaluation balances), the economic capital as on June 30, 2019 stood at 23.3% of balance sheet. As financial resilience was within the desired range, the entire net income of ₹1,23,414 crore for the year 2018-19, of which an amount of ₹28,000 crore has already been paid as interim dividend, will be transferred to the Government of India."