Sharp drop in provisions helped RBI transfer bumper dividend to RBI

The Reserve Bank of India‘s income rose 17 percent last fiscal on higher interest income from bond holdings, but it was the sharp drop in provisions transferred to the Contingency Fund that helped it pay a record Rs. 2.1 lakh crore in dividend to the central government.

An amount of ₹42,819.91 crore was provided towards CF to maintain the Available Realised Equity at the level of 6.50 per cent of the size of the balance sheet. This provision was higher at Rs 1.30,874 crore in FY’2022-23. “ The lower need for provision was because the risk buffers were supported by revaluation gain on foreign securities due to INR depreciation” said Gaura Sengupta, chief economist at IDFc First Bank. “ INR appreciation against USD (and other currencies) results in revaluation loss as RBI’s balance sheet is denominated in INR. Increase in gold prices also supported revaluation gains”.

No provision was made towards the Asset Development Fund (ADF). Accordingly, balance in CF as on March 31, 2024 was ₹4,28,621.03 crore as compared to ₹3,51,205.69 crore as on March 31, 2023.On the income side, RBI’s interest income was supported from foreign sources – on foreign securities (such as US treasuries) and interest on deposits. Around 82% of foreign currency assets are held as securities and the rest as deposits with other Central banks and BIS. “ RBI’s foreign currency assets increased by 14% in FY24 and the rate of earning also increased 4.2% in FY24 v/s 3.7% in FY23” said Sengupta. Overall Economic Capital (or risk buffers) is tracking at 22.5% of total assets which is well within the recommended range of 20.8-25.4.

Overall RBI’s income in 2023-24 was Rs 2,75,572 crore versus Rs 2,35,467 crore the previous year and its expenditure was sharply lower at Rs 64694 crore due to drop in provisioning versus Rs 1,48,037 crore in expenditure in the previous year. As a result, the central bank could manage to earn a surplus income of RS 2,10,878 crore for FY ‘2023-24 , which in turn could be transferred to the government.

The size of the balance sheet increased by Rs 7,02,946.97 crore, 11.08 per cent from Rs 63,44,756.24 crore as on March 31, 2023 to ₹70,47,703.21 crore as on March 31, 2024.Increase on the assets side was due to a rise in foreign investments, gold, and loans and advances by 13.90 per cent, 18.26 per cent and 30.05 per cent, respectively. On the liabilities side, expansion was due to an increase in notes issued, deposits and other liabilities by 3.88 per cent, 27.00 per cent and 92.57 per cent, respectively.

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