Money & Banking

RBI transfers ₹57,128 cr as FY20 surplus to funds-strapped Centre

Our Bureau. Mumbai | Updated on August 14, 2020 Published on August 14, 2020

May not plug the Budget hole as payout lower than FY19’s ₹1,75,987 cr

The Central Board of the Reserve Bank of India on Friday approved a transfer of ₹57,128 crore as surplus to the Centre for the accounting year 2019-20.

The Board meeting, chaired by RBI Governor Shaktikanta Das, also decided to maintain the Contingency Risk Buffer (CRB) at 5.5 per cent. CRB is the component of RBI’s economic capital required to cover its monetary and financial stability, credit and operational risks.

The RBI’s transfer comes when the Centre’s finances are severely stressed. Its fiscal deficit as on June 30 has already touched 83.2 per cent of the full-year Budget target, mainly due to the precipitous dip in revenues because of the nationwide lockdown imposed to curb Covid-19 spread.

The transfer, however, is much lower than the RBI’s payout last year when the parameters for paying dividend to the Centre were tweaked.

Higher surplus last year

The higher transfer in 2018-19 was the result of the RBI Central Board accepting all the recommendations of the expert committee (headed by former RBI Governor Bimal Jalan) on the economic capital framework.

The committee was formed in the backdrop of reported friction between the RBI and the Centre on the issue of transfer of surplus.

 

According to an RBI statement issued then, the Board had taken into account four parameters for transferring surplus — RBI’s economic capital, provisioning for market risk, size of realised equity, and surplus distribution policy.

According to the 2018-19 RBI annual report, the central bank had transferred ₹1,75,987 crore, including an interim dividend of ₹28,000 crore.

Non-tax revenue

Madan Sabnavis, Chief Economist, CARE Ratings, observed that after taking into account the RBI’s surplus transfer of ₹57,128 crore to the Centre, there is still a deficit of ₹32,520.51 crore to meet the FY21 Union Budget’s non-tax revenue projection of ₹89,648.51 crore via ‘Dividend/Surplus from RBI, Nationalised Banks & Financial Institutions’.

He felt that it is unlikely that the deficit under this category will be bridged.

With the RBI conducting more reverse repos (absorbing surplus liquidity from the banking system and paying interest to the system), Sabnavis feared that the RBI’s earnings could be even lower this financial year.

Other items on agenda

Besides giving its approval to the surplus transfer, the RBI Board reviewed the current economic situation, continued global and domestic challenges and the monetary, regulatory and other measures taken by RBI to mitigate the economic impact of the Covid-19 pandemic.

It discussed the proposal to set up an Innovation Hub.

It also approved the Annual Report and RBI accounts for 2019-20.

 

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Published on August 14, 2020
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