RBI dividend to govt could have been Rs 1.2 lakh crore if not for risk buffer change

On May 19, the RBI’s central board of directors raised the Contingency Risk Buffer to 6 percent from 5.5 percent.

The Indian government could have received a dividend of more than Rs 1 lakh crore from the Reserve Bank of India (RBI) for 2022-23 if not for a tweak in the central bank's risk buffer.

On May 19, the RBI's central board of directors approved the transfer of Rs 87,416 crore as dividend to the government. While this was nearly double the Rs 48,000 crore estimated by the government in the 2023-24 Budget as dividend from the central bank and state-owned lenders, the RBI's board decision to raise the Contingency Risk Buffer to 6.0 percent from 5.5 percent deprived the government of another Rs 31,000 crore or so.

According to Moneycontrol calculations, had the RBI's board maintained the Contingency Risk Buffer at 5.5 percent, the dividend to the government would have been Rs 1.2 lakh crore.

"The ECF (economic capital framework) requires the Contingent Risk Buffer (CRB) to be maintained in the range of 5.50 percent to 6.50 percent of the size of the balance sheet. The Central Board approved that CRB may be maintained at 6.00 percent of the size of the balance sheet of the Reserve Bank for the year 2022-23. Accordingly, a provision of Rs 1,30,875.75 crore was made and transferred to CF (Contingency Fund) during the year," the RBI said in its annual report for last year, released on May 30.

The annual report did not mention why the risk buffer was raised to 6 percent. Moneycontrol has reached out to the RBI for a comment on the same.

The Contingency Risk Buffer comprises the RBI's provisions to cover any potential risks – be it credit, operational, financial, or related to monetary stability. The Bimal Jalan-led expert committee, in August 2019, had recommended the RBI maintain this buffer in the range of 5.5-6.5 percent of its balance sheet. Since then, the RBI's board has always taken the lower bound, or 5.5 percent, as the level of its CRB.

The RBI's annual report showed that it made a record provision of Rs 1.31 lakh crore in 2022-23. But had the risk buffer been left unchanged at 5.5 percent, the RBI's provisions would have been lower by around Rs 31,724 crore.

As at the end of 2022-23, the RBI had assets amounting to Rs 63.45 lakh crore and Available Realised Equity – the sum of the central bank's capital and balances in the contingency, asset development, and reserve funds – of Rs 3.81 lakh crore, amounting to 6 percent of assets. If the Contingency Risk Buffer was left unchanged at 5.5 percent, the Available Realised Equity needed would have been just under Rs 3.49 lakh crore.

According to economists, the RBI's board may have raised the risk buffer to 6 percent keeping in mind that 5.5 percent is the minimum requirement. Further, it could also have been a precautionary move as a number of central banks have reported negative equity positions due to losses on their bond and FX portfolios piling up.