Widening of CRB range aimed at smoothening surplus transfer to govt

Business Standard

26-05-2025

The revised Economic Capital Framework (ECF) adopted by the Reserve Bank of India (RBI), which expanded the Contingency Risk Buffer (CRB) range to 4.5–7.5 per cent, is intended to give the central bank greater flexibility to smoothen surplus transfers to the government without significantly impacting fiscal calculations, experts said.
Last week, the RBI's central board approved a record ₹2.69 trillion surplus transfer to the government for the financial year 2024–25, while maintaining the CRB at 7.5 per cent—the upper end of the newly revised range. The robust surplus was supported by higher earnings from foreign exchange transactions (gross dollar sales surged to $399 billion in FY25 from $153 billion in FY24), increased interest income from government securities, and lower provisioning for revaluation losses amid possible mark-to-market gains on both foreign and domestic assets.
Previously, the CRB range was narrower—between 5.5 and 6.5 per cent. From FY19 to FY22, RBI kept the CRB at 5.5 per cent of its balance sheet. It was increased to 6 per cent in FY23 and further to 6.5 per cent in FY24.
'Increasing the Contingency Risk Buffer (CRB) provides the RBI with greater flexibility, enabling it to smoothen surplus transfers to the government and prevent significant volatility in fiscal calculations,' said Gaura Sen Gupta, Chief Economist, IDFC First Bank.
'In an exceptional year like FY25, the RBI may opt to raise the CRB to 7.5 per cent, thereby transferring a lower surplus. Conversely, during a challenging year, it could reduce the CRB to 4.5 per cent to maintain a reasonably stable surplus transfer,' she said.
Gupta added that the move is prudent, particularly in the current volatile global environment, as a large portion of the RBI's foreign currency assets are invested in overseas securities—primarily US Treasuries.
The RBI's central board adopted the revised ECF based on the recommendations of a committee chaired by Bimal Jalan. The expert committee had suggested that the ECF be reviewed every five years.
Following this review, the board concluded that the existing ECF had successfully ensured a resilient balance sheet and healthy surplus transfers to the government. However, certain adjustments were made to strengthen the framework in light of emerging risks.
'The revised ECF provides requisite flexibility year-on-year to the central board in the maintenance of risk buffers, considering prevailing macroeconomic and other factors, while also ensuring the needed intertemporal smoothening of the surplus transfer to the government,' the RBI said.
According to a Barclays report, the revision addresses the uneven nature of past transfers: ₹2.1 trillion was transferred in FY24—the highest ever—more than double the ₹0.9 trillion transferred in FY23. In comparison, FY22 saw a much lower transfer of ₹0.3 trillion, the smallest in over a decade.
'The reason they have widened it is to provide flexibility in uncertain environments,' said Indranil Pan, Chief Economist, Yes Bank. 'If, in the future, they feel the risk buffer is no longer needed to the same extent, they can reduce it.'