Context:

• For FY 2024–25, the Reserve Bank of India (RBI) is expected to transfer a record surplus of ?2.5 to ?3 lakh crore to the Central Government. This follows a review of the Economic Capital Framework (ECF) by the RBI’s Central Board on May 15, 2025, ahead of the final decision on the transfer.

Surplus Transfer:

• A surplus transfer refers to the transfer of the RBI’s net income—after meeting its internal provisions—to the Government of India.

?? It is not a dividend, as the RBI is not a profit-driven commercial entity but a central bank with a broader monetary and regulatory mandate.

Section 47 of the RBI Act, 1934

The RBI Act mandates that after making specific provisions, the remaining surplus must be transferred to the government. These provisions include:

• Covering bad and doubtful debts
• Providing for asset depreciation
• Funding staff benefits and pension liabilities
• Meeting other banking contingencies

Where Does the RBI Earn Its Income?

The RBI’s income is primarily generated from:

• Foreign investments: Interest from bonds, T-bills, and deposits with other central banks.
• Domestic investments: Interest from government securities.
• Repo operations: Short-term lending to commercial banks.
• Debt management services: Commission for managing central and state government borrowings.
• Currency and payments: Fees for managing cash flow and payment infrastructure.

RBI’s Key expenditures include:

• Currency printing
• Salaries and retirement benefits of RBI staff
• Commission payments to banks and dealers for handling public debt operations

How is the Surplus Transfer Amount Determined?

The RBI calculates its surplus using the Economic Capital Framework (ECF), adopted in August 2019, based on the Bimal Jalan Committee’s recommendations.

Why is This Important?

A high surplus transfer boosts the government’s fiscal space, helping it meet spending obligations without expanding borrowing. However, it also raises questions about:

• RBI’s financial autonomy
• Prudent reserve management
• Balancing fiscal needs with central bank independence

Conclusion

The expected record surplus transfer for FY 2024–25 reflects strong RBI earnings and careful reserve management. While it provides a welcome fiscal cushion for the government, sustaining this balance requires adherence to transparent frameworks like the ECF, ensuring that monetary stability and institutional autonomy remain intact.

Source: LiveMint (LM)