RBI transfers Rs. 65,900 Crores to Government

By Vijay Kumar

LAST week almost all newspapers reported that RBI has transferred surplus amounting to Rs. 65,896 crore to the Government of India.

Did RBI suddenly make a surplus and did the Government get an unexpected windfall?

This is an annual feature.

In the Union Budget 2015-16, under the Non-Tax Revenue, Dividend/Surplus of Reserve Bank of India, Nationalised Banks & Financial Institutions, an amount of Rs. 64,477 crore was shown as receipts. Similar receipts were provided for in the previous years.

So, this year the RBI has given the Finance Minister more than what he has budgeted for.

But where does RBI get the money and more so surplus from?

As per the Annual report for 2013-14, RBI's income was Rs.64,616.97 crore from Interest, Discount, Exchange, Commission, etc. Of this, the RBI spent 11,933.92 crores leaving about 53,000 crores surplus which was paid to the Government.

As per Section 47 of the RBI Act,

Allocation of surplus profits.: 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.

RBI generates the revenue primarily from its lending and borrowing activities. When it borrows it usually intervenes in the market to mop up excess liquidity and the ROI is below the market rates. When it lends it lends to inject liquidity when the market struggles and ROI is above the market rates. So it has this twin advantage as a lender of last resort of dictating the ROI. Thus, it always makes money.

Other sources are administering the huge foreign exchange resources by deploying them in overseas markets and generating interest income, exchange difference earned, levies, penalties etc.