The Reserve Bank of India (RBI) has approved a significant surplus transfer of Rs 2.11 lakh crore to the Central Government for the accounting year 2023-24.This transfer marks a substantial increase from the previous year’s dividend, showcasing a notable rise in surplus income.
How does the RBI Determine the Allocation of Dividends
- The surplus calculation was based on the Economic Capital Framework (ECF) recommended by the Bimal Jalan committee, which advised the RBI to maintain a Contingent Risk Buffer (CRB) between 5.5% and 6.5% of its balance sheet.
- This risk provisioning is made primarily from retained earnings and only then is the surplus income transferred to the government as dividends.
- This range includes provisions for monetary and financial stability risks as well as credit and operational risks.
- RBI transfers its surplus, which is the excess of income over expenditure, to the government as per Section 47 of the Reserve Bank of India Act, 1934.
- Reasons for the Increase in RBI’s Surplus: As of March 2024, the RBI had USD 646 billion in foreign exchange reserves, with USD 409 billion parked in top-rated sovereign securities.The RBI’s gross dollar sales were lower in FY24 (USD 153bn) compared to FY23 (USD 213 bn).Despite lower dollar sales in FY24 compared to FY23, the RBI’s management of foreign currency assets ensured continued high revenue.Income from Liquidity Adjustment Facility (LAF) operations also contributed to the overall surplus.
| Reserve Bank of India’s Sources of Income | |
| Source of Income | Interest from Government SecuritiesOpen Market Operations (OMOs)Foreign Exchange OperationsInterest on Loans and AdvancesIncome from LAF |
| Expenditure | Operating ExpensesInterest Paid on Deposits and BorrowingsCurrency Issue ExpensesProvisioning for Contingencies and Reserves |
| Surplus | Net income derived from the total income (sources of income) minus total expenditure (expenses).Reserve funds and contingency provisions for financial stability and emergencies. |