Streak Out The Government’s RBI Windfall

The RBI approved the Jalan committee’s recommendation for 2018-19, RBI agreeing to transfer Rs. 1.76 lakh crores to the Government.

Where Does RBI Income Come From...
RBI’s income comes via domestic and foreign sources as interest receipts and other income sources.

Domestic Sources:
*Earnings from interest on holding of domestic securities for conducting OMOs + interest on loans and advances to Centre and State Governments/ Banks & FIs.

*Discount/ exchange / commission/ rent
Foreign sources:

Earnings from foreign currency assets

Where Does RBI Spend Money
*Printing of notes
*Agency charges
*Employee cost provision made for transfer to Contingency Fund. (Resumed in FY18 and FY17)

What Are These Reserves, And How Are They Created?
Reserves can be thought of as hassock that comes in handy in times of inconsistency.

These are basically:
(A) Provisions for unforeseen contingencies arising from forex ops & monetary policy decisions

Contingency Fund (CF) —bequeath by RBI Asset Development Fund (ADF)

(B) Unrealized marked-to-market gains/ losses

Currency and Gold Revaluation Account (CGRA)

Investment ..
What Was The Centre’s Dispute With RBI On Reserves?
*Last year, a disagreement broke out over the level of reserves the RBI should manage
*Government said RBI’s reserves were about 26% of assets against around 16% globally
*It wanted overrun reserves to be transferred to it
*RBI set up a committee to review its economic capital framework

What Has The Jalan Committee Suggested
Wanted clear terminus between realized equity (basically CF, which was built from confined earning) and revaluation balances (CGRA).

*Realized equity to meet all risks
*Revaluation balances were not disseminate
*Realized equity to be 6.5-5.5% of size of RBI’s balance sheet. So any excess over this level should be transferred to government
*Advised against immersion into reserves to pay for remittance in the event of a shortfall in income
RBI’S TAKE ON RECOMMENDATIONS
*Accepted the recommendations
*Realized equity taken at lower bound of 5.5%
*This created surplus Rs. 52,637 crores that goes to government.
*At recommended realized equity, economic capital works out at 24.5%-20% of assets
*Economic capital on June 30, 2019 at 23.3%
*RBI went by the lower threshold of 20%
*This allowed entire net income of Rs. 1, 23, 414 crores to go to Government

By – Tripti Varun
Content - https://economictimes.indiatimes.com/news/economy/finance/rbi-windfall-where-did-the-money-come-from/articleshow/70868328.cms