From where does RBI surplus come?

• The Reserve Bank of India (RBI) has decided to transfer ₹2.69 lakh crore to the Central government as a surplus for 2024-25, a record high of 27%.

• This transfer is higher than the previous year’s transfer of ₹2.11 lakh crore, which was also a record at the time.

• The government budgeted ₹2.56 lakh crore as dividend or surplus from the RBI, and public sector banks and insurance companies.

• The RBI’s share exceeds this amount, indicating that the government’s total collections from this category are likely to be far in excess of what it budgeted.

• The RBI is not a traditional company with shareholders, and so it cannot issue dividends. However, it is a ‘full-service’ central bank, targeting inflation, issuing currency, regulating the banking sector, and is the last resort lender to the government of India and the various State governments.

• The RBI earns significant profits from its functions, such as issuing currency, lending money to the Central government, State governments, and commercial banks, and making investments in other countries’ bonds.

• The debate is on the size of the buffer the RBI should maintain, which is the main buffer fund the RBI maintains, the Contingent Risk Buffer (CRB).

• The RBI’s higher transfer this year was due to higher foreign exchange sales by the RBI, higher earnings on its foreign exchange assets, and from its liquidity management.

• The RBI has provided itself a wider band for the CRB, so if next year it decides to keep it at the lower end of 4.5%, then it could have a larger amount left over to send to the government.