RBI Annual Report: Provisions, forex gains hit record highs in FY23

The central bank will also take measures for enhancing retail investor awareness about the scheme. Representative image

Both provisions and foreign exchange gains reached their record highs in FY23, according to the Reserve Bank of India (RBI) annual report released on May 30.

In 2022-23, the central bank made a provision of Rs 1.31 lakh crore, up 14 percent from 2021-22. At the same time, its gains from foreign exchange transactions jumped nearly 50 percent to Rs 1.03 lakh crore, allowing it to transfer a larger-than-budgeted dividend of Rs 87,416 crore to the government.

The RBI's provisions have increased sharply over the last couple of years, with 2021-22 seeing a five-fold jump to Rs 1.15 lakh crore as global interest rates surged. In 2022-23, the interest rates spiked further, forcing the RBI to mark down its holdings of foreign securities. This resulted in the central bank's Investment Revaluation Account-Foreign Securities (IRA-FS) falling into negative Rs 1.65 lakh crore as on March 31, 2023.

"As per the extant policy, the debit balance of Rs 1,65,488.93 crore in IRA-FS was adjusted against the CF (Contingency Fund) on March 31, 2023 which was reversed on the first working day of the following year. Accordingly, the balance in IRA-FS as on March 31, 2023 was Nil," the RBI said in its annual report.

The Contingency Fund is meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary and exchange rate policy operations, and systemic risks.

Overall, the RBI's provision accounted for 88 percent of its total expenditure.

Huge FX gains

At the other end of the spectrum were the gains from the RBI's foreign exchange transactions, which made up 44 percent of its total income of Rs 2.35 lakh crore.

The RBI's FX gains of Rs 1.03 lakh crore in 2022-23 were on the back of record foreign currency sales of $213 billion - more than twice what the central bank sold in 2021-22.

The RBI sold a record amount of foreign currency in 2022-23 as it tried to bring down volatility in the rupee's exchange rate following the turmoil that roiled global financial markets after Russia's invasion of Ukraine. The rupee also came under severe pressure last year due to a sharp rise in the import bill as global commodity prices surged.

The RBI makes a profit on every unit of foreign currency it sells, with the difference between the sale price and the historical average acquisition cost of the foreign currency representing this profit. Economists have pegged the historical average acquisition cost of the RBI's foreign currency holdings in the range of Rs 62-65 per dollar. Meanwhile, the rupee's median monthly exchange rate against the US dollar ranged from 76.2 to 82.7 in 2022-23.