ECONOMIC CAPITAL FRAMEWORK - ECONOMY
News: RBI triples dividend, to pay ₹87,416 cr.
as surplus to government
What is in the news?
●
The Central Board of
Directors of the Reserve Bank of India (RBI) approved the transfer of ₹87,416 crore as surplus to the Union
government for the accounting year 2022-23.
Key takeaways from the news:
●
The Budget had looked at
a number of Rs 48,000 crore as dividend from banks and RBI. RBI has overshot
this number with the transfer of Rs
87,000 cr.
●
This year's dividend was
almost thrice the ₹30,307 crore amount transferred in the previous fiscal year.
●
The board also decided to raise the Contingency Risk Buffer to 6%, from
5.5% in the preceding year.
●
It also approved the
Annual Report and accounts of the Reserve Bank for the accounting year 2022-23.
Reasons for the transfer of higher dividend:
●
Higher earnings on sale
of forex during the year,
●
Better returns on forex
investments in US treasuries,
●
Revaluation of forex
assets and adjustments in reserves as per the Bimal Jalan Committee
recommendations,
●
Higher pay-outs due to
the higher Standing Deposit Facility (SDF) rates with the system being in
surplus all through the year.
Back to the Basics:
Reserve Bank of India's dividend:
●
According to the Reserve
Bank of India Act of 1934, RBI should allocate surplus amount from the profits
to the government.
●
Under Section 47 of the
RBI Act, “After making provision for bad
and doubtful debts, depreciation in assets, contributions to staff and
superannuation funds and for all other matters for which provision is to be
made by or under this Act or which are usually provided for by bankers, the
balance of the profits shall be paid to the Central Government.”
Bimal Jalan Committee:
The committee was
set up to review the RBI's extant Economic Capital Framework (ECF).
Recommendations:
●
According to the
Committee, a better distinction between the two components of RBI's economic
capital, realized equity and revaluation balances, was needed. The realized
equity can be used as a buffer in meeting losses, whereas the revaluation
balances will be used only during market risks as they are unrealized valuation
gains and cannot be distributed.
●
The Committee has
recommended the adoption of Expected
Shortfall (ES) under stressed conditions for measuring the RBI’s market
risk and asked to adopt a target of ES 99.5 percent confidence level.
●
It also asked to maintain
Contingent Risk Buffer (CRB) within 6.5
per cent and 5.5 per cent of RBI's balance sheet.
●
The Jalan Committee
recommended a surplus distribution policy that follows the realized equity
maintained by the RBI.
●
The panel also suggested
that the RBI’s ECF should be reviewed
every five years.