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Income surge, decline in provisions help RBI write govt big check

RBI coffers swelled while provisions declined in fiscal 2024, helping it transfer a record ₹2.1 trillion to the government

Income surge, decline in provisions help RBI write govt big check
[Source photo: Chetan Jha/Press Insider]

The Reserve Bank’s coffers swelled in fiscal 2024 on a 17% jump in income and a massive 56.3% reduction in expenses, helping it transfer a record ₹2.1 trillion surplus to the government.

While income in fiscal 2024 rose to ₹2.76 trillion from ₹2.35 trillion in the previous year, expenses declined to ₹64,694 crore from ₹1.48 trillion the previous fiscal primarily on a decline in provisions.

Provisions in fiscal 2023 were at ₹1.31 trillion when compared with ₹42,820 crore in fiscal 2024, a 67% decline.

“The transfer of surplus is dependent on meeting the dual objectives of maintaining contingency risk buffer between 5.5-6.5% and economic capital between 20.8-25.4% of total balance sheet. The objectives were comfortably met by making a provision of ₹42,820 crore towards contingency funds,” Soumya Kanti Ghosh, group chief economic adviser at State Bank of India said in a research statement.

The support for contingency risk buffers came from revaluation gains on foreign securities, analysts said.

“The (contingency) risk buffers were supported by revaluation gains on foreign securities amid rupee depreciation,” IDFC First Bank chief economist Gaura Sengupta told The Economic Times, adding that the increase in gold prices also supported revaluation gains.

Revaluation gains occur when the value of an asset, such as foreign securities, increases. In this context, the value of foreign securities increased due to the depreciation of the rupee.

The central bank’s balance sheet rose by 11.08% during the fiscal year, which ended with a surplus of ₹2,10,874 crore as against ₹87,416.22 crore in the previous year, 141.23% jump.

The RBI’s annual report that was released on Thursday showed that while its foreign investments rose by 13.9% in the past fiscal, gold assets rose by 18.3%, and loans and advances by 30%.

On the liabilities side of the RBI’s balance sheet, the value of currency notes issued rose by 3.9%, deposits by 27% and other liabilities by about 93%.

Domestic assets constituted 23.3% while foreign currency assets, gold (including gold deposit and gold held in India), and loans and advances to financial institutions outside India constituted 76.7% of total assets as on 31 March as against 26.08% and 73.92%, respectively, as on 31 March 2023.

State of the economy

Meanwhile, RBI said the economy exhibited resilience during 2023-24 in the face of headwinds from protracted geopolitical tensions and volatile global financial markets.

“The combination of a sustained anti-inflationary monetary policy stance and proactive supply management measures resulted in headline inflation remaining largely within the tolerance band,” it said, adding, “Monetary and credit conditions evolved in line with the monetary policy stance.

“Within the commitment to fiscal consolidation, emphasis was laid on capital spending. External sector sustainability indicators improved during the year, insulating the economy from spillovers from adverse global macro-financial shocks,” it said.

Internationalisation of the rupee

The Reserve Bank said it has continued to engage in developing and deepening domestic financial markets by broadening participation, easing access, strengthening the regulatory framework, streamlining regulations and fostering innovations.

Efforts are underway towards internationalisation of the Indian rupee through settlement of bilateral trade in local currency, it said in the annual report.

“To promote the internationalisation of the rupee and support local currency settlement with partner countries, it is necessary to liberalise the regulations relating to INR accounts for non-residents. Accordingly, the Foreign Exchange Management (Deposit) Regulations regarding INR accounts by non-residents are currently being reviewed in consultation with the government,” RBI said.

Rationalisation of regulations towards promoting the internationalisation of the INR was undertaken to enable the settlement of bilateral trade in local currencies, it said.

The Payments Vision Document 2025, which was released in June 2022 by RBI’s Department of Payment and Settlement Systems, has outlined expanding the global outreach of UPI and RuPay cards as one of the key objectives under the internationalisation project.

The Reserve Bank is in talks with central banks of various countries for entering into collaborative arrangements, it added.

A report from the Inter Departmental Group, released in July last year, on making the rupee international notes some progress, RBI said.

The achievements include export incentives for trading in rupees, adding government bonds to the JP Morgan Global Index starting June, and the Sri Lankan central bank recognizing the rupee as a foreign currency.

Additionally, agreements were made with the UAE and Indonesian central banks for local currency trading, and the implementation of UPI QR codes, RuPay cards, and fast payment systems for remittances in several countries, it added.

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