Why & how does RBI transfer surplus to the govt?

Does RBI transfer surplus to the govt?

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The RBI had transferred Rs 57,128 crore to the government for the accounting year 2019-20. The year before, the RBI had, based on the Jalan Committee formula, transferred a record Rs 1.76 trillion, which included Rs 1.23 trillion as dividend and Rs 52,637 crore of excess provisions.

The Reserve Bank of India (RBI) planned to transfer 99,122 crore as surplus to the Centre for nine months ended March 31, 2021. The surplus is considerably higher than what the RBI has put forth in the last two years. According to the chief economist at ICRA, the funds will allow the Indian government to absorb the losses that it is likely to face due to the second wave of COVID-19.

In 2019, RBI transferred Rs 1,23,414 crore surplus to the government. As the manager of its finances, every year the RBI pays a dividend to the government to help with the finances from its surplus or profit.

The Reserve Bank of India (RBI) has approved a Rs 99,122-crore dividend payout to the government for an accounting period of nine months ended March 31, 2021 (July 2020-March 2021).

Short-Term Borrowing – RBI lends money for a short period of time, maximum being an overnight post which the banks buy back their securities deposited at a predetermined price. Collaterals & Securities RBI accepts collateral in the form of gold, bonds etc. The Reserve Bank acts as adviser to Government, whenever called upon to do so, on monetary and banking related matters. The Central Government and State Governments may make rules for the receipt, custody and disbursement of money from the consolidated fund, contingency fund, and public account.

Recently RBI approved Rs 99,122 crore as surplus to the Central government for a nine-month period from June 2020 to March 2021. But RBI isn’t a company that announces a dividend. Then how does it earn this surplus or profit? And how does it transfer surplus fund to the Central government?

Reserve Bank of India makes a profit by carrying out a number of operations and services. Its income also comes from the returns it earns on its foreign currency assets, deposits with other central banks, as well as its holdings of local rupee-denominate Government Bonds and Securities. Its expenditures are limited, is mainly incurred on the printing of currency notes, on staff salaries and on commissions to other banks.

RBI transfers this surplus, ie the excess of income over expenditure, to the government in accordance with section 47 of the Reserve Bank of India act, 1934. Reserve Bank of India is also exempted from paying income tax or any other tax, including wealth tax on these profits.

In February, Finance Minister Nirmala Sitharaman had projected Rs 53,511 crore as surplus from RBI. The actual amount is over 85% higher than the budget estimate. By and large, with a few exceptions, the quantum of surplus transfer averages around 0.5% of the GDP.

Earlier, the RBI transferred part of the surplus to the Contingency Fund and the Asset Development Fund. After the Malegam Committee’s recommendation in 2013-14, RBI’s transfer of surplus to the government as a percentage of gross income shot up to 99.9% from 53.40% in 2012-13.

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