Reserve Bank Made Large Transfer To Contingency Funds In FY22: RBI Annual Report
The RBI transferred Rs 1.15 lakh crore to the contingency fund in FY22.
The Reserve Bank of India made a large transfer to its contingency fund in 2021-22 in order to maintain the minimum level of risk provisions. As a result of this, the surplus available to transfer to the government fell to the lowest on record, showed the central bank's annual report released on Friday.
As per the central bank's existing economic capital framework, the contingency risk buffer has to be maintained at 5.5-6.5%. It has been kept at 5.5%, the lower end of the recommended band.
According to the annual report:
RBI balance sheet expanded 8.46% year-on-year.
Income up 20.14% to Rs 1.6 lakh crore.
Expenditure up 280% to Rs 1.3 lakh crore.
Of expenditure, transfer to contingency fund at Rs 1.15 lakh crore.
Net income at Rs 30,311 crore.
Surplus transferred to government at Rs 30,307 crore.
The RBI's balance sheet of Rs 61.9 lakh crore is 26.2% of nominal GDP for the year, having normalised from a level of 29% last year.
The lower-than-expected dividend was due to higher provisioning and interest cost on liquidity operations, said Gaura Sen Gupta, economist at IDFC First Bank. "The higher provisioning was on account of revaluation loss on foreign securities," he said.
Foreign securities are marked-to- market on the last business day of each week ending Friday and the last business day of each month and the unrealised gains/losses arising therefrom are transferred to the revaluation reserves.
The balance in the revaluation reserves decreased from Rs 8,853.67 crore as on March 31, 2021 to a deficit of 94,249.54 crore as on March 31, 2022 because of increase in yields across the maturities for all major markets, the annual report said. This was adjusted against the contingency fund on March 31, 2022 which was reversed on the first working day of the following year. "Accordingly, the balance in revaluation reserves for foreign securities as on March 31, 2022 was Nil," the annual report said.
The increase on the asset side was due to increase in foreign investments, domestic investments, gold, and loans and advances, said the RBI. During the year, domestic investments rose 11.67%, while foreign investments rose 4.28%. Gold investments rose 30.7% and loans and advances were up 54.3%, the RBI said.
"Domestic assets constituted 28.22%, while the foreign currency assets and gold (including gold deposit and gold held in India) constituted 71.78% of total assets as on March 31, 2022."
Forex Income Continues To Add To RBI's Income
The Reserve Bank of India earns income from its holding of domestic and international securities. It also earns income from its foreign exchange operations.
Starting FY19, the RBI decided, on the recommendation of committees that had looked into the matter, that any sales of foreign currency would be compared with the weighted average holding cost of the currency, and this difference is taken to the RBI’s income statement as realised profit (or loss). Until then, the central bank would compare any sales to the weekly revaluation rate, leaving little in terms of profit or loss to be transferred.
The accounting change has continued to mean higher income for the Reserve Bank.
In FY22, the RBI earned Rs 68,990 crore via exchange gains from foreign exchange transactions -- an increase of 36% over the previous year.
The central bank's interest income from domestic and international holdings both increased.
Interest income on rupee securities rose 61% to Rs 96,396 crore.
Interest income on foreign securities rose 37% to Rs 31,559 crore.
In FY22, RBI’s gross dollar sales in spot market rose to $96.7 billion compared to $85 billion in FY21, according to IDFC First Bank. This included two dollar-rupee swaps of $5 billion.
"The large quantum of dollar sale and historical cost accounting practise would result in large gains in foreign exchange transactions. We calculate historical cost of gross dollar purchase at 59.6," the research house said.