The Reserve Bank on Monday accepted the Jalan committee’s recommendation, agreeing to transfer Rs 1.76 lakh crore to the government for 2018-19. ET explains the distribution formula:
WHERE DOES RBI INCOME COME FROM... Mainly as ‘Interest Receipts’ and ‘Other income’
Sourcewise, RBI’s income comes via domestic and foreign sources
Domestic Sources: *Earnings from interest on holding of domestic securities for conducting OMOs + interest on loans & advances to centre and state govts/banks & FIs
*Discount/exchange /commission/ rent
Foreign sources: Earnings from foreign currency assets
WHERE DOES RBI SPEND... *Printing of notes
*Agency charges/commission
*Employee cost Provision made for transfer to Contingency Fund. (resumed in FY18 and FY17)
WHAT ARE THESE RESERVES, AND HOW ARE THEY CREATED? Reserves can be thought of as cushions that come in handy in times of instability
These Are Basically:
(A) Provisions for unforseen contigencies arising from forex ops &
monetary policy decisions &…
Contingency Fund (CF) — contributed by RBI Asset Development Fund (ADF)
(B) Unrealised marked-to-market gains/losses
Currency and Gold Revaluation Account (CGRA)
Investment Revaluation Account-rupee securities (IRA-RS)
WHAT WAS THE CENTRE’S DISPUTE WITH RBI ON RESERVES? *Last year, a dispute broke out over the level of reserves the RBI should maintain
*Govt said RBI’s reserves were about 26% of assets against around 16% globally
*It wanted excess reserves to be transferred to it
*RBI set up a committee to review its
economic capital framework
WHAT HAS THE JALAN COMMITTEE SUGGESTED Wanted clear demarcation between realised equity (basically CF, which was built from retained earning) and revaluation balances (CGRA).
*Realised equity to meet all risks
*Revaluation balances were not distributable
*Realised equity to be 6.5-5.5% of size of RBI’s balance sheet. So any excess over this level should be transferred to govt
*Advised against dipping into reserves to pay for dividend in the event of a shortfall in income
RBI’S TAKE ON RECOMMENDATIONS *Accepted the recommendations
*Realised equity taken at lower bound of 5.5%
*This created surplus Rs 52,637 crore that goes to govt
*At recommended realised equity, economic capital works out at 24.5%-20% of assets
*Economic capital on June 30, 2019 at 23.3%
*RBI went by the lower threshold of 20%
*This allowed entire net income of Rs 1,23,414 crore to go to govt
The Reserve Bank on Monday accepted the Jalan committee’s recommendation, agreeing to transfer Rs 1.76 lakh crore to the government for 2018-19. ET explains the distribution formula:
WHERE DOES RBI INCOME COME FROM... Mainly as ‘Interest Receipts’ and ‘Other income’
Sourcewise, RBI’s income comes via domestic and foreign sources
Domestic Sources: *Earnings from interest on holding of domestic securities for conducting OMOs + interest on loans & advances to centre and state govts/banks & FIs
*Discount/exchange /commission/ rent
Foreign sources: Earnings from foreign currency assets
WHERE DOES RBI SPEND... *Printing of notes
*Agency charges/commission
*Employee cost Provision made for transfer to Contingency Fund. (resumed in FY18 and FY17)
WHAT ARE THESE RESERVES, AND HOW ARE THEY CREATED? Reserves can be thought of as cushions that come in handy in times of instability
These Are Basically:
(A) Provisions for unforseen contigencies arising from forex ops &
monetary policy decisions &…
Contingency Fund (CF) — contributed by RBI Asset Development Fund (ADF)
(B) Unrealised marked-to-market gains/losses
Currency and Gold Revaluation Account (CGRA)
Investment Revaluation Account-rupee securities (IRA-RS)
WHAT WAS THE CENTRE’S DISPUTE WITH RBI ON RESERVES? *Last year, a dispute broke out over the level of reserves the RBI should maintain
*Govt said RBI’s reserves were about 26% of assets against around 16% globally
*It wanted excess reserves to be transferred to it
*RBI set up a committee to review its
economic capital framework
WHAT HAS THE JALAN COMMITTEE SUGGESTED Wanted clear demarcation between realised equity (basically CF, which was built from retained earning) and revaluation balances (CGRA).
*Realised equity to meet all risks
*Revaluation balances were not distributable
*Realised equity to be 6.5-5.5% of size of RBI’s balance sheet. So any excess over this level should be transferred to govt
*Advised against dipping into reserves to pay for dividend in the event of a shortfall in income
RBI’S TAKE ON RECOMMENDATIONS *Accepted the recommendations
*Realised equity taken at lower bound of 5.5%
*This created surplus Rs 52,637 crore that goes to govt
*At recommended realised equity, economic capital works out at 24.5%-20% of assets
*Economic capital on June 30, 2019 at 23.3%
*RBI went by the lower threshold of 20%
*This allowed entire net income of Rs 1,23,414 crore to go to govt
