The Reserve Bank of India (RBI) logo is displayed outside of the bank’s headquarters in Mumbai, India. (Photographer: Kainaz Amaria/Bloomberg)

RBI Surplus Transfer To Government Rises In 2017-18

The board of Reserve Bank of India has approved the transfer of a surplus amount of Rs 50,000 crore to the Government of India for the year ended June 30, 2018. The decision was taken at RBI’s Central Board of Directors meeting on Wednesday, the central bank said in a release.

At the end of each financial year, the central bank transfers the surplus generated from its functions to the government after accounting for any funds transferred to the contingency reserve or the asset development fund. The RBI follows July-June year, different from April to March followed by the government.

Surplus transfers rose between FY14 and FY16 but fell in FY17 due to the impact of demonetisation. For the year ended June 30, 2017, the RBI had transferred a surplus of Rs 30,659 to the Government.

In April this year, government officials had confirmed to BloombergQuint that the RBI transferred an interim dividend of Rs 10,000 crore. Since the RBI release specified that the surplus transfer of Rs 50,000 crore is for the year ended June 30, 2018, it is likely that the transfer of Rs 10,000 crore is included in this.

The Broader Debate

Apart from the annual surplus transfers, which happen in a relatively mechanical way, there has been a broader debate on whether the RBI can transfer more funds to the government.

The government wants the RBI to define a policy governing dividends, BloombergQuint reported in May.

Over the years, a number of committees have weighed in on the RBI’s balance sheet and its dividend policy. A 2013 committee headed by YH Malegam had questioned the adequacy of reserves held by the RBI. It had recommended that each year the RBI transfer 15 percent of the original cost of fixed assets to the prevailing asset development reserve. The committee had also recommended that the contingency reserves held by the RBI be built up.

More recently, in its annual report for 2015-16, the RBI said that it had prepared a “draft economic capital/provisioning framework to assess its risk-buffer requirements in a structured and systematic manner”. This framework will also be used for determining the surplus transferable each year by the Reserve Bank to the Government of India, the annual report had said.