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The Reserve Bank of India’s Central Board on Friday approved the transfer of ₹99,122 crore as surplus to the Central government for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021). This is 73.50 per cent higher vis-a-vis the ₹57,128 crore transfer approved in the accounting year 2019-20.
This transfer of higher surplus comes in the backdrop of the government stepping up spending for healthcare and social sector schemes in the wake of the Covid-19 pandemic. This will boost its capacity to spend.
“In our projections, we had factored in a dividend of ₹65,000 crore from the RBI, while the government’s budget estimates included ₹45,000 crore from the Central bank. A larger-than-expected dividend from the RBI provides the fiscally stretched government with room to provide more relief measures to alleviate the impact of the second Covid-19 wave,” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore.
They observed that the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the Central bank – the RBI recently allowed itself to book profits on its foreign exchange transactions from a weighted average cost perspective.
“Our estimates show that this move could have helped the Central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the Central bank’s income for the year,” Bajoria and Sodhani said.
Risk buffer
The Board, at its 589th meeting on Friday, decided to maintain the Contingency Risk Buffer at 5.50 per cent.
“The Board reviewed the current economic situation, global and domestic challenges and recent policy measures taken by the Reserve Bank to mitigate the adverse impact of the second wave of Covid-19 on the economy,” RBI said in a statement.
With the change in the Reserve Bank’s accounting year to April-March (earlier July-June), the Board discussed the working of the RBI during the transition period of nine months (July 2020-March 2021) and approved the Annual Report and accounts of the Reserve Bank for the transition period.
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