The Reserve Bank of India's (RBI) Central Board of Directors approved the transfer of Rs 87,416 crore as surplus to the Central government for 2022-23. The apex bank on May 19 said that the board also decided to raise the contingency risk buffer to 6.00 percent from 5.50 percent.
But what is contingency risk buffer and how does it work? Here's an explainer.
What is the contingency risk buffer?
The contingency risk buffer is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies. These unforeseen contingencies could include depreciation of securities values, risks from monetary rate policy changes, systemic risks to the system, etc.
The apex bank, for a fiscal year, has to keep the buffer fund of a certain percent of its balance sheet.
Also read: RBI board approves transfer of Rs 87,416 crore as dividend to govt for 2022-23
How does it work?
At the end of a fiscal year, the RBI transfers the surplus fund (in the form of dividend) to the government as per the economic capital framework (ECF) adopted by its board.
The apex bank than transfers the dividend from the surplus income generated during that financial year.
What is the latest announcement?
On May 19, RBI's Central Board of Directors, for the fiscal year 2022-23 approved the transfer of Rs 87,416 crore as surplus to the central government.
Other than the dividend, the board also decided to raise the contingency risk buffer to 6.00 percent from 5.50 percent.
What has been the dividend payout over the years?
Over the years, the RBI's dividend has become a major source of revenue for the government, rising from Rs 33,010 crore for 2012-13 to Rs 1.76 lakh crore for 2018-19 following a change in the central bank's economic capital framework in August 2019.
The dividend for 2022-23, transferred in 2023-24, is sharply higher than what the government had expected to receive. In the 2023 Budget, the government had estimated it would get Rs 48,000 crore as dividend from the central bank and state-owned lenders in 2023-24.
Moneycontrol had reported back in January that the Centre can expect a hefty dividend from the RBI this year even though 2022-23 was a bad year for the central bank's investments. With global interest rates rising sharply in 2022-23, the RBI would have faced unrealised losses on its holdings of foreign as well as rupee securities.
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