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RBI transfers almost entire surplus to govt

Practice is to give residual surplus after appropriation to Reserve Fund

Manojit Saha  |  Mumbai 

The Reserve Bank of India (RBI) has transferred almost its entire surplus to the government, against the usual practice of giving the residual surplus after appropriation to the Reserve Fund.

The RBI board approved transfer of Rs 52,679 crore of surplus for 2013-14 — the highest ever given to the government. It was 60 per cent more than that transferred the previous year. During 2012-13, the surplus generated by the RBI was Rs 61,804 crore, 43.6 per cent more than the previous year. Of that, Rs 33,010 crore was transferred to the government as surplus.

The central bank follows a July-June accounting year.

The government, which is battling to keep its fiscal deficit under check, will consider it as a welcome gift.

In early 2014, RBI appointed a committee headed by Y H Malegam to look into the issue of surplus transfer to government. The committee, which submitted its recommendations only recently, said the contingency and asset development reserves are at adequate level and RBI — for the next three years, starting from this fiscal — should transfer its entire surplus earned in the previous accounting year, to the government. After three years, once RBI balance sheet grows, again a part of the surplus could be allocated for the reserve funds. It was reasoned that government should need the fund now which is facing high fiscal deficit that's needed to be brought down.

The central bank maintains a contingency reserve for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, exchange guarantees and risks arising out of monetary or exchange rate policy operations. According to central bankers, since RBI is also the lender of last resort, it needs to maintain a healthy contingency reserve so that it can lend its support in the event of a bank’s failure.

Apart from the contingency reserve, RBI also maintains Asset Development Reserve, created in 1997-98, to meet the internal capital expenditure and make investments in its subsidiaries and associate institutions. The contingency reserve and the asset development reserve together constituted 10.1 per cent of the RBI’s total assets as on June 30, 2013 — still short of the 12 per cent target the central bank wanted to achieve.

In the previous accounting year, the contingency reserve increased by Rs 26,247 crore to Rs 22,1652 crore, while the asset development reserve was increased by Rs 2,547 crore to Rs 20,761 crore.

In 2012, RBI had set up a technical committee under Y H Malegam to review the form of presentation of the bank’s balance sheet and profit & loss account with a view to enhancing their readability and information content.

Among other things, the committee had recommended that the present level of RBI reserves is sufficient for monetary stabilisation and the central bank can afford not to add to the reserves. Financial ministry officials had highlighted the committee’s recommendations to the central bank.

The RBI had, however, said that to implement the committee’s recommendations, which involves changes in the format of the balance sheet and income statement would require the approval of the Central amendments to RBI Act, 1934.

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First Published: Tue, August 12 2014. 00:50 IST