RBI FUNCTIONS: 

INTRODUCTION:

The Reserve Bank of India (RBI) is India’s central bank. It controls the monetary policy concerning the national currency, the Indian rupee. The basic functions of the RBI are the issuance of currency, sustaining monetary stability in India, operating the currency, and maintaining the country’s credit system

In May 2023, the Reserve Bank approved a Rs 87,416 crore dividend payout to the central government for 2022-23, nearly triple what it paid in the previous year.

Details: 

• The decision was taken at the 602nd meeting of the Central Board of Directors of the Reserve Bank of India held under the chairmanship of Governor Shaktikanta Das.
• The board approved the transfer of Rs 87,416 crore as surplus to the central government for the accounting year 2022-23.
• This is a 188% jump from the last year’s (2021-22) surplus transfer of Rs 30,307 crore.
• It decided to keep the Contingency Risk Buffer (CRB) at 6 per cent.
• The contingency risk buffer is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies.
• The Bimal Jalan Committee recommended that the CRB needs to be maintained at a range of 5.5% to 6.5% of the RBI’s balance sheet.
• The board also reviewed the global and domestic economic situation and associated challenges, including the impact of current global geopolitical developments.
• The dividend could bring in additional revenue of around 0.2 per cent of GDP.

Provisions Regarding Transfer of Surplus by RBI:

• The Reserve Bank of India Act of 1934 mandates that profits made by the central bank from its operations be sent to the Central Government.
• As the manager of its finances, every year the RBI also pays a dividend to the government to help with the finances from its surplus or profit.
• A technical Committee of the Reserve Bank of India headed by Y H Malegam (2013), which reviewed the adequacy of reserves and surplus distribution policy, recommended a higher transfer to the government.

How Does RBI Make Profits?

• The RBI is a “full-service” central bank.
• It is mandated to keep inflation in check and also manage the borrowings of the Government of India and of state governments.
• It also supervises or regulates banks and non-banking finance companies and manages the currency and payment systems.  While carrying out these functions, RBI makes profits.
• RBI claims a management commission on handling the borrowings of state governments and the central government.
• RBI also earns interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight.
• RBI’s income comes from the returns it earns on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.

LEF Guidelines

Reserve Bank of India has dismissed worries about the “exposure” of Indian banks to the Gautam Adani-led conglomerate. Click here to read more about the Adani-Hindenburg issue.

What is Final Exposure?

• A bank’s counterparty exposures may cause its assets to become concentrated in the hands of a single or network of connected counterparties.

About Large Exposure Framework (LEF) Guidelines:

• The Basel Committee on Banking Supervision (BCBS) released supervisory recommendations on significant exposures in January 1991, titled Monitoring and Managing Significant Credit Exposures. Know more about Basel III Norms in the link.
• The recommendations on large exposures (LE) for banks were created by the RBI after deciding that Indian banks should properly embrace these standards.
• With rare exclusions, the LEF applies to a bank’s exposure to all of its counterparties as well as groups of connected counterparties.
• It is founded on the 2014 Basel guidelines.
• Positive indications include numerous measures of sufficient capital, excellent assets, liquidity, provision coverage, and profitability.