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RBI to transfer 73 per cent higher surplus to the government in FY21

The Reserve Bank of India has raised its surplus transfer to the government by nearly 73 percent at close to Rs. 1 lakh crore beating market expectations and even the budget projection by the Centre, probably helped by gains in revaluation of foreign exchange reserves and kept the contingency risk buffer at the lower end of the range prescribed by the Jalan committee.

After setting aside all the prescribed provision, the RBI board approved the transfer of Rs 99,122 crore as surplus to the Central Government for the accounting period of nine months ended March 31, 2021, while deciding to maintain the Contingency Risk Buffer at 5.50% at the lower end of the range of 5.5-6 per cent prescribed by the Jalan committee which reviewed RBI’s economic capital framework. This is 73.5 higher than Rs 57128 crore surplus transfer made in FY’20.

The RBI’s financial year ended in March this year for the first time from its earlier practice of ending its financial year in June. This is in line with the Bimal Jalan Committee’s recommendation so that the government and the RBI’s financial years coincide .

While the market had factored around Rs 65,000 crore transfer, the government estimates in the budget documents was pegged at around Rs 45,000 crore. ” In our view, the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the central bank — the RBI recently allowed itself to book profits on its FX transactions from a weighted average cost perspective” said Rahul Bajoria,chief India economist at Barclay’s capital. ” Our estimates show that this move could have helped the central bank boost yields on its foreign asset holdings”

Also increased holdings of government securities which many commercial banks have parked with its are likely to have added to the central bank’s income for the year.

” We think today’s dividend announcement will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal year. This could be particularly helpful in alleviating the impact of the second COVID-19 wave.

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