- by Anapeksha Mukherjee
- 27th Aug 2020
Why RBI Sent Rs 73,615 Crore to Its Contingency Fund ?
Reserve Bank of India, the government’s banker, has decided to keep Rs. 73,615 crore within themselves by keeping the share in to the RBI’s Contingency Fund. Therefore, a fall in the surplus amount provided to the government is seen in the current year. And this led to RBI increasing its net amount to Rs. 264,034 crore, according to their annual report. The risk provisions, namely, Contingency Fund, urrency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS) valued together stands up to Rs. 13.88 lakh crore.
Contingency Fund -
A special provision for unforseen conditions like epreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any other risks which can account due to the responsiblilities upon Reserve Bank. The money is kept within the RBI. A greater amount of Rs. 73,615 crore in the contingency fund, there was a difference in the balance of contingecy fund as compared to last year(Rs. 264,034 crore in June 2020 as compared to Rs. 196,344 crore in June 2019). Last year, Rs. 52,637 crore was withdrawn to pay higher surplus to government.
What did government get as surplus this year?
The Central Board of the RBI sanctioned Rs. 57,128 crore as surplus to the Central Government for the year 2019-20, about 67.5% less than what it paid the government last year (Rs. 1.76 lakh crore). The newly adopted Economic Capital Framework last year by RBI was followed to transfer this year. Laast year’s tranfer included Rs. 123,414 crore of dividends due from the previous financial year 2018-19 and Rs. 52,637 crore taken out from the fund as per the revised ECF. Section 47 of the RBI Act states that, “profits or surplus of the RBI are to be transferred to the government, after making various contingency provisions, public policy mandate of the RBI, including financial stability considerations”.
Why the rise in surplus last year?
The government wanted funds to heap the deficits and wanted higher surplus from RBI pointing that they had retained higher reserves. Headed by Urjit Patel, initially the request was resisted, but later they relented and appointed the Bimal Jalan committee to carry out the formalities of the transfer. The excess risk provision amounted to Rs. 52,637 crore, and was written to income back from the CF, thus facilitating the surplus of Rs. 1.76 lakh crore to government.
What is CGRA?
The Currency and Gold Revaluation Account (CGRA) is the unrealized gain/loss in the value of gold and foreign exchange RBI holds based on movements in their value which is not considered in the income account but taken as a balance-sheet item. Thus, net balance of the CGRA, differs with the assets and the exchange rate and price of gold. CGRA acts like a buffer to manage the exchange rate/ gold price fluctuations.
If the exchange losses are huge and CGRA is not sufficient, the account is refilled from the contingency fund. Balance in CGRA increased from Rs. 664,480 crore to Rs. 977,141 crore as of June 30, 2020. The main reasons being the depreciation in the value of rupee and the rise in the price of gold internationally.
What is the reason for decline in RBI’s income?
There is a 29% decline in the income of RBI as of June 2020. The amount decreased from Rs. 193,036 as of 2018-19 to Rs. 149,672 on June 2020. The reason was the write-back of Rs. 52,637 from the CF. If compared, there is a marginal increase in income for 2019-20. The total expenditure of the RBI for the year 2019-20 is Rs 92,540 crore which also includes a risk provision of Rs 73,615 crore for the CF as compared to an expenditure of Rs 17,045 crore in 2018-19. The excess surplus amount would be transferred back to the government.
What are IRS-FS and IRA-RS account?
Investment Revaluation Account Foreign Securities (IRA-FS) is the record book for the gains or losses on revaluation in foreign dated securities. There was a increase of balance from Rs. 15,735 crore to Rs. 53,834 from June 30, 2019 to June 30, 2020.
Similarly, the Investment Revaluation Account-Rupee Securities (IRA-RS) records the the unrealised gains or losses on revaluation for domestic grounds. IRA-RS also saw an increase from Rs. 49,476 crore as on June 30, 2019 to Rs. 93,415 crore as on June 30, 2020. The reason being the increase in portfolio of rupee securities and also the depreciation in the yields for the government of India.
