Strong forex gains propel RBI’s FY23 income to ₹2.35 tn
The forex gains were on record currency sales of $213 billion, more than twice what the central bank sold in fiscal 2022.
PremiumMumbai: The Reserve Bank of India (RBI)’s income grew 47% to ₹2.35 trillion in fiscal 2023 on higher forex gains, up from ₹1.6 trillion in the previous year, its annual report released on Tuesday showed.
During the year, the central bank saw a 50% jump in gains from foreign exchange transactions, which allowed it to transfer a larger-than-budgeted dividend of ₹87,416 crore to the government. The gains from foreign exchange transactions stood at ₹1.03 trillion at the end of FY23, compared to ₹68,990.55 crore at the end of the previous year.
The forex gains were on record currency sales of $213 billion, more than twice what the central bank sold in fiscal 2022.
RBI’s foreign currency sales, which more than doubled from the previous fiscal year in gross terms, are a crucial source of income for the central bank as it generates a profit on these sales.
RBI sold a lot of dollars in FY23 as it tried to bring down volatility in the rupee exchange rate following the turmoil that roiled global financial markets after Russia invaded Ukraine in February 2022.
The central bank’s balance sheet increased by 2.5% to ₹63.45 trillion in FY23, up from ₹61.9 trillion in FY22. Besides the ₹87,416 crore transferred to the government, the central bank also transferred ₹1.3 trillion to its contingency risk buffer.
A contingency buffer is a specific provision meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary and exchange rate policy operations and systemic risks. The contingency buffer stood at 6% of the balance sheet, an increase from 5.5% in the previous year.
According to Normura research, the higher RBI dividend is a fiscal windfall of over ₹50,000 crore or 0.17% of the gross domestic product (GDP) for the government, but it is likely to be neutralized by an equal amount of slippage on the fertilizer subsidy. “FY24 fiscal dynamics have a lot of moving parts, with a potential undershoot of nominal GDP growth, lower tax buoyancy, an overly tight budget for revenue expenditure and ambitious capex targets. As such, the risk to the FY24 fiscal deficit target of 5.9% of GDP is still towards slippage," Nomura said.
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