The Reserve Bank of India has approved the transfer of Rs 30,307 crore as a surplus to the Union government for the 2021-22 accounting year. The contingency risk buffer (the risk provisioning made primarily from retained earnings) has also been retained at 5.5 per cent.
The central board of directors of RBI met on Friday, under the chairmanship of Governor Shaktikanta Das. The current economic situation, global and domestic challenges and the impact of recent geopolitical developments, was reviewed in the meeting.
This surplus/dividend transfer by the RBI to the government is significantly lower than what it did last year. In 2020-21, the board had approved the transfer of Rs 99,122 crore as surplus to the government. This year’s surplus transfer is also lower than the Rs 73,948 crore in dividend that the Centre had estimated in the Budget this year from RBI and public sector financial institutions. This budgeted estimate was itself lower than the Rs 1.01 lakh crore that the government had received last year from them.
Under Section 47 (Allocation of Surplus Profits) of the RBI Act, after making provisions for bad loans, contribution to staff and superannuation fund, depreciation in assets and other provisions, surplus profit of the central bank is to be paid to the government.
Why is the surplus transfer lower this year?
In 2020, when Covid-19 pandemic hit, the central bank slashed its interest rates and pushed ample liquidity into the system to help the economy tide over the crisis. However, over the last few quarters, as economic recovery has gained strength and inflation worries have resurfaced, the RBI began sucking out the surplus liquidity through reverse repo auctions. Reverse repo is the rate at which RBI borrows from commercial banks. Banks earn interest from RBI on this and to that effect, there is lower surplus that the central bank is left with to transfer this year.
“In FY22, due to heavy investment of RBI in reverse repo auctions, which at an average of Rs 6-7 lakh crore a day at an average cost of even 3.5 per cent, would mean a cost of Rs 21,000-24,500 crore. This would have accrued to the government as surplus would have been higher,” said Madan Sabnavis, chief economist at Bank of Baroda.
With a lower RBI surplus this year, public sector banks and financial institutions may now have to do a lot more heavy lifting.
“For the year, the government is targeting Rs 74,000 crore approx. as dividend/ surplus from RBI, public sector banks and public financial institutions. This will mean that a large part of profit of PSBs and public financial institutions will have to be transferred to make good this number or else there will be a slippage,” said Sabnavis.
