1. The Reserve Bank of India (RBI) has approved the surplus transfer of Rs 1,76,051 crore to the central government. Out of the total sum, Rs 1,23,414 crore was the surplus from the year 2018-2019 and Rs 52, 637 was from the surplus reserves, identified by the committee as per the revised Economic Capital Framework (ECF).
2. The amount is more than 300 per cent of what was transferred last year. The central bank had transferred Rs 50,000 crore in 2017-18
3. Rs 28,000 crore has already been paid as an interim dividend in the previous financial year. Thus, Rs 95000 crore remains to be transferred this fiscal.
4. In simple terms, RBI is sharing a one-time profit with the Indian government. The RBI earns profits through various means including interest on securities held and currency swaps i.e when one nation's currency is used in place of the dollar by another country. Here the RBI provides the Indian Rupee to be used as swap against foreign currencies
5. The top bank's decision is in line with the recommendations of the Bimal Jalan Committee. The committee, in December 2018, tried to find out if the central bank has excess reserves that can be transferred to the Indian government. The committee made observation that economic capital should be between 20 to 24.5 per cent of RBI balance sheet. It was 23.3 per cent in June 2019 proving that RBI was one of the most resilient central banks when it comes to the economic capital or keeping reserves
6. According to the RBI Act, the central government may give such directions to the central bank in the public interest, after consultation with the Governor of the bank. Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank
7. The Indian government can use this surplus money in many ways including maintaining a fiscal deficit target of 3 per cent of GDP. The 'windfall' can also be used to solve the liquidity crisis behind the current slowdown. Also, the government can increase public investments on welfare schemes and infrastructure development. Government-owned banks can be recapitalised and the excess money can also compensate the government for the low GST collections this year.
(With inputs from agencies)
The amount is more than 300 per cent of what was transferred last year.