Contingency Fund of RBI
#GS3 #Economy #RBI
The Reserve Bank of India (RBI) has retained a whopping amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund (CF) of the central bank, thus leading to a sharp fall in the transfer of surplus to the government in the current year.
- The central bank’s main risk provision accounts – Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS) — together now amount to Rs 13.88 lakh crore.
What is the ‘Contingency Fund’ of RBI?
- This is a specific provision meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the Reserve Bank. This amount is retained within the RBI.
What did the government get as surplus this year?
- The Central Board of the RBI recently approved the transfer of Rs 57,128 crore as surplus – or dividend — to the Central government for the accounting year 2019-20, sharply lower by 67.5 per cent from Rs 1.76 lakh crore that it paid to the government last year.
- While the RBI’s transfer this year is as per the economic capital framework (ECF) adopted by the RBI board last year, last year’s transfer included Rs 123,414 crore of dividends due from the previous financial year 2018-19 and Rs 52,637 crore taken out from CF as per the revised ECF.
- As per Section 47 of the RBI Act, profits or surplus of the RBI are to be transferred to the government, after making various contingency provisions, public policy mandate of the RBI, including financial stability considerations.
What is the CGRA Account?
- The Currency and Gold Revaluation Account (CGRA) is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.
- Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
- Net balance in CGRA, therefore, varies with the size of the asset base, its valuation and movement in the exchange rate and price of gold.
- CGRA provides a buffer against exchange rate/ gold price fluctuations. It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
What are IRA-FS and IRA-RS accounts?
- The unrealised gains or losses on revaluation in foreign dated securities are recorded in the Investment Revaluation Account Foreign Securities (IRA-FS).
- Similarly, the unrealised gains or losses on revaluation is accounted for in Investment Revaluation Account-Rupee Securities (IRA-RS).
- The balance in IRA-RS increased from Rs 49,476 crore as on June 30, 2019 to Rs 93,415 crore as on June 30, 2020 due to increase in portfolio of rupee securities and decline in yields on government of India securities held by the Reserve Bank during the year.