Govt gets Rs 1.76 lakh cr bonanza from RBI

The Reserve Bank of India (RBI) will transfer a whopping Rs 1.76 lakh crore to the Centre for the year 2018-19.

The decision comes within days of the Centre announcing an upfront payment of Rs 70,000 crore to the public sector banks to meet their rising expenditures and give a boost to their balance sheet.

The decision was taken at a board meeting of the RBI, which accepted the Bimal Jalan Committee recommendation on the central bank’s surplus transfer to the government.

The amount includes Rs 52,637 crore of excess money identified as per the revised Economic Capital Framework (ECF).

The RBI has about Rs 10 lakh crore of excess amount in its kitty, a large part of which is held in gold.

The Rs 1.76 lakh crore includes an interim dividend of Rs 28,000 crore the central bank has already given to the government so far this year. The RBI follows July-June as its financial year.

“The transfer of surplus from the RBI should help to offset the expected shortfalls in various tax revenues in FY2020 and aid the government in meeting its fiscal deficit target,” said Aditi Nayar, Principal Economist at Icra.

The surplus capital will also prevent the yields on government bonds from moving up.

“As financial resilience was within the desired range, the entire net income of Rs 1,23,414 crore for the year 2018-19, of which an amount of Rs 28,000 crore has already been paid as interim dividend, will be transferred to the Government of India,” the RBI said in a statement.

The Centre and the RBI have been locked in a battle over the central bank’s excess reserves for the past many years. While the government wished to have a larger pie of its reserves to use for productive sector of the economy, the central bank said it needed the reserves for the rainy day.

It was due to this difference of opinion that the Centre had set up a committee to look into the matter under former RBI Governor Jalan, who submitted the report on Friday last to the central bank. The committee’s recommendations suggest that it wants the transfer to be in a phased manner, while the government wanted a one-time transfer.

This was one of the reasons why former finance secretary Subhash Garg had dissented to the decision.