RBI Surplus Transfer
2023 MAY 23
Economic Development > Indian Economy and Issues > Monetary policy
Why in news?
- The Reserve Bank of India (RBI) has approved a significant transfer of surplus funds to the Union Government, providing a major boost to the fiscal position.
- The surplus transfer for the accounting year 2022-23 amounts to Rs 87,416 crore, a 188% increase compared to the previous year.
About RBI Surplus Transfer:
- The difference between RBI's income and expenditure is RBI’s surplus.
- RBI transfers the surplus to the government after making provisions for reserves and retained earnings.
- RBI transfers the surplus, in accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934.
- A technical committee of the RBI Board headed by Y H Malegam (2013), which reviewed the adequacy of reserves and surplus distribution policy, recommended a higher transfer to the government.
Factors Contributed and Implications to the Surge in Surplus Transfer:
- Factors Contributed:
- Higher dividends from public sector banks and oil marketing companies.
- Increased earnings on investments, valuation changes on dollar holdings, revaluation of forex assets and adjustments in reserves as per the Bimal Jalan Committee recommendations and currency printing fees.
- Rupee depreciation against the dollar impacting the surplus transfer.
- Higher rates on the surplus distribution framework contributing to increased payouts.
- Higher earnings on the sale of foreign exchange and investments in US treasuries.
- Implications due to Surplus Transfer:
- Fiscal relief for the government, particularly in managing fiscal numbers amid uncertainties in the divestment program.
- Helps compensate for potential shortfalls in tax buoyancy and other revenue sources.
- Provides a fiscal buffer to support the budget targets.
- Assists in offsetting potential losses due to lower disinvestment, telecom pay-outs, or tax revenues.
How does RBI Generate Surplus?
- RBI's Income:
- Interest on holdings of domestic and foreign securities.
- Fees and commissions from its services.
- Profits from foreign exchange transactions.
- Returns from subsidiaries and associates.
- RBI’s Expenditure:
- Printing of currency notes.
- Payment of interest on deposits and borrowings.
- Salaries and pensions of staff.
- Operational expenses of offices and branches.
- Provisions for contingencies and depreciation.
Which of the following contributes to RBI’s income?
1. Printing of currency notes
2. Returns earned on foreign currency assets
3. Commission on handling the borrowings of state governments
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1,2 and 3