vijayk wrote:I read about this a lot. Still can't figure our where RBI got all this surplus.
Here's a summary of how things are. RBI earns from multiple sources. RBI's own fiscal year (Jul-Jun) doesn't match GoIs (Apr-Mar). For Jul18-Jun19, its balance sheet was Rs 40.49 lakh crore, up 11% from 2017-18's Rs 36.17 lakh crore, which again was 9.5% up from the year before it. These assets consist of gold coin/bullion, foreign currency assets (currently ~$430 billion or about Rs 30.5 lakh crore), gains from investment in govt securities, as well as loans and advances.
When it reports a balance sheet, the liabilities side is composed of multiple components that comprise RBI's capital reserves, which it uses to manage any monetary or liquidity crisis on its own:
* currency and gold revaluation account (CGRA),
* investment revaluation account,
* asset development fund (ADF) and
* contingency fund (CF)
After meeting its own opex, and accounting for reserve levels as established by committee (such as the latest Bimal Jalan one, which the RBI accepted in full), RBI transfers the extra surplus to GoI. Most of its income goes into the CF and ADF (asset development fund, which funds entities like National Housing Bank, NABARD, SIDBI).
The CF is about 6.8% of this balance sheet. The CF is set aside for meeting unforeseen contingencies like a drop in value of securities or risks in monetary policy actions. Bimal Jalan committee prescribes CF of 6.5-5.5% of balance sheet. RBI accepted the lower band of 5.5%, and thus transferred the difference between 6.8% and 5.5% (Rs.52637 crore) to GoI . At the current 5.5% level, the CF will be ~Rs 2.25 lakh crore.
CGRA consists of gains or losses in foreign exchange reserves, and this item has grown significantly in recent years, CAGR of 25% since 2010 to Rs 7.3 lakh crore in 2018-19. CGRA+CF constitute the overwhelming majority of RBI's capital reserves. The Bimal Jalan committee recommends that RBI's capital reserves be between 24.5% and 20% of balance sheet. I don't have access to RBI's website now, so I can't tell, but this number should be around 24% right now, and was 26.5% last fiscal.
Now the question of the larger than typical dividend. Usually RBI transfers about 50-60K crore as dividend to GoI each year. This time, it is much more due to additional income from OMO market intervention and dollar selling to manage currency exchange rate volatility. With RBI continuing to be accommodative (i.e. bond buying, therefore earning interest), its balance sheet will keep growing.
Another question is that of the mechanism of transfer of surplus to GoI. In my opinion, there was a lack of a clear policy based threshold definition based on which RBI could determine the quantum of transfers, and a lack of agreement on which to do this. The Jalan committee fixes some of these at least, by recommending particular thresholds, which RBI has accepted. Now the next issue is that of special surplus transfers. Ideally RBI and GoI would agree upon a quarterly or half yearly transfer schedule. I think that would suit GoI more than once a year transfers.