The RBI’s foreign exchange reserves stood at $538 billion on August 7, more than $100 billion addition in a year. Foreign exchange reserves were $429 billion a year ago.
“In a year when the RBI has a larger LAF (liquidity adjustment facility) programme, there would be a tendency for more money to be earned by the central bank. Conversely in FY21, for instance, where the RBI has been more active with the reverse repo, net earnings could be lower as payouts would be more than receipts from repo such as targeted long-term repo operations (TLTRO),” said Madan Sabnavis, chief economist of CARE Ratings.
While the details will be available with the release of the Annual Report later this month, it is unlikely there would be any provision for more transfer because the central bank is aligning its financial year with that of the government and that limits the opportunity for that.
According to the economic capital framework (ECF) adopted by the RBI board last year, the contingency risk buffer, or realised equity, has to be maintained at 5.5-6.5 per cent of the balance sheet.
The RBI board decided to maintain the buffer at 5.5 per cent.
“It does look like that the RBI may be a steady though not hyper-active provider of funds to the government. The only way out would be if there is direct lending to the government by which the latter pays interest to the central bank and it comes back as surplus transfer,” Sabnavis said.
In 2018-19 (July to June), Rs 1,23,414 crore of its surplus was transferred to the central government, and then an additional Rs 52,637 crore of excess provision as recommended by the Bimal Jalan committee on the ECF.
RBI’s financial year runs from July to June, but from next year, the financial year will get aligned with that of the government and will end in March. The central bank’s board met on Friday to review the RBI’s balance sheet, and the surplus transfer is part of that review process.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.