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The Print
5 days ago
- Business
- The Print
Why RBI's dividend to Centre is at a record high in FY25 & a volatile history of its surplus transfers
The ECF governs how much capital the RBI should maintain to cover its various risks and how much of its surplus income can be transferred to the government. The Reserve Bank of India Act, 1934, gives the RBI paid up equity capital of Rs 5 crore. However, under the provisions of Section 47 of the Act, the RBI created discretionary reserves and revaluation accounts to account for fluctuations on its assets side as well as unforeseeable expenses. The announcement of surplus transfer followed a review of the Economic Capital Framework (ECF), which is used to determine provisioning for various kinds of risks the central bank is subjected to and surplus distribution by the central bank. Last week, the Reserve Bank of India (RBI) announced a record Rs 2.69 lakh crore annual dividend to the central government for FY 25. The record transfer is in spite of the RBI raising the Contingency Risk Buffer (CRB) to 7.5 percent of the balance-sheet from its previous level of 6.5 percent in 2023-24. There are five major reserves operated by the RBI that have quasi-equity like functions. They are Contingency Fund (CF), Asset Development Fund (ADF), Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account (IRA) and Foreign Exchange Forward Contracts Valuation Account (FCVA). The CF represents the amounts added on a year-to-year basis for meeting unexpected and unforeseen contingencies. The ADF was created to make investments in subsidiaries and associated institutions. The Currency and Gold Revaluation Account (CGRA) reflects the unrealised gain/losses on revaluation of Foreign Currency Assets and Gold which are credited/debited to this account. The Investment Revaluation Account-Foreign Securities (IRA-FS) and the Investment Revaluation Account-Rupee Securities (IRA-RS) account for unrealised gains/losses in foreign and rupee-dated securities, respectively. The unrealised gains/losses arising from forward contracts (marked to market revaluations) are accounted for in the FCVA. The RBI's total economic capital includes the realised equity (CF and ADF) plus the three revaluation balances. Also read: UK FTA is good news for India amid global turbulence. Domestic reforms must follow market access Risks These reserves are maintained to deal with risks. The determination of capital is based on the risk a central bank may face. Market risk captures the risk of losses arising from adverse movements in valuation of assets of the RBI, including foreign reserves, gold and government securities. Credit risk arises if a borrower fails to default on any type of debt. This is not a very prominent source of risk for a central bank. Operational risk may emerge from the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. For a central bank, the most important source of risk emerges from its monetary policy operations and financial stability mandate. Forex intervention (buying of dollar and sale of rupees) in the wake of capital inflows increases domestic liquidity. If sterilisation operations are conducted to absorb the excess liquidity, it changes the composition of the balance sheet by increasing the forex component. This not only increases the currency risk of the RBI, but also reduces its income as it replaces high yielding domestic securities with lower yield foreign securities. Revised ECF The revised ECF was introduced by RBI in May 2025, marking the first major update since the 2019 framework based on the recommendations of the Bimal Jalan Committee report. The changes aim to enhance flexibility, risk sensitivity, and financial resilience amid evolving macroeconomic challenges. Some of the key changes include the raising the CRB and the inclusion of off-balance sheet exposures in market risk assessment. CRB is a component of RBI's realised equity that accounts for operational, credit, and financial stability and monetary risks. Below is a comparison of the new framework with its predecessor: Stability risk buffer and distribution smoothing RBI noted that in the previous years the surplus transfers made to the government have been volatile. To solve this, the monetary and financial stability risk buffer range has been increased to 5 percent ± 1.5 percent, allowing provisioning between 3.5 percent to 6.5 percent. It was stated that the earlier range did not provide adequate flexibility to smoothen the transfer to the government. Therefore, the revised range is said to provide RBI with ample room to determine its buffer amount while also smoothening the transfers made to the government. Distribution smoothing is a model of remittance that reduces the volatility of the surplus transferred to the government. The volatility is typically reduced through clear rule-based methodology for transfers made by the central bank. For instance, the National Bank of Switzerland has entered into an agreement with the Department of Finance to determine the annual amount of transfer to the government for a 5-year period. This agreement aims to even out any medium-term volatility. Similarly, the Swedish central bank, Riksbank, smoothens its remittances by transferring a 5-year average of its net adjusted income to the government. These are explicit smoothing arrangements aimed at addressing the distribution asymmetry arising from income fluctuations for central banks. The adoption of the ECF added structure to RBI's surplus distribution policy, but the framework relies on broad principles when provisioning for monetary and financial stability risks. While increased flexibility allows for adaptability to changing risk environments, its use for smoothing of transfers, in the absence of a clear methodology, can give rise to unpredictability. The core issue here is not of flexibility but flexibility without clarity. The provision to be made each year appears to be based on the discretion of the central bank. This could mean that the increased buffer range may not necessarily solve the issue of erratic transfers. A clear rule-based framework for provisioning within the given range could provide more transparency and lead to less volatility in transfer of surplus to the government. Radhika Pandey is an associate professor and Nipuna Varman is a research fellow at the National Institute of Public Finance and Policy. Views are personal. Also read: Moody's US credit rating downgrade may usher in a new era—waning investor interest in US govt bonds
News.com.au
01-05-2025
- Business
- News.com.au
Why the US dollar is likely to keep falling in 2025
The US dollar has long been the undisputed anchor of the global financial system. But in 2025, it increasingly appears that the tide is turning. A combination of economic headwinds, structural misalignments, political interventions, and shifting global alliances are all weighing on the greenback – and the pressure is unlikely to let up anytime soon. Overvalued Even after a roughly 5% decline in its trade-weighted value over the past several months, the dollar remains significantly overvalued compared to its historical average. According to many experts, the dollar would need to fall by 25–30% to return to its long-term fair value. This level of imbalance is rarely sustained for long without a correction – and when such corrections happen, they tend to be protracted and deep. Think back to the dollar slumps of the mid-1980s and early 2000s: both periods saw steep, sustained declines driven by structural imbalances not unlike those we're seeing today. What's different now is that the dollar isn't just being pulled lower by economic gravity; it's also being pushed. Investor sentiment Institutional investors are rapidly losing confidence in the dollar as a store of value. The latest Bank of America Global Fund Manager Survey shows that more than 60% of respondents expect the dollar to weaken further over the next 12 months – the most bearish reading in nearly 20 years. It reflects a broader reassessment of the US's economic trajectory under the current administration and a growing sense that better opportunities exist elsewhere, particularly in emerging markets and commodity-linked currencies. In addition, fund flows indicate that global investors are reallocating away from US assets, which further weighs on the dollar. The S&P 500 is still near record highs, but underneath the surface, capital is flowing into non-dollar-denominated bonds and equities at a rate not seen since before the pandemic. Political interference undermining Fed cred A major pillar of dollar strength has always been confidence in the independence and credibility of the Federal Reserve. But that pillar is showing cracks. President Trump's public rebukes of Fed Chair Jerome Powell, as well as ongoing speculation about replacing Fed leadership with more politically compliant figures, have rattled markets. When a central bank is perceived to be under political pressure, its ability to fight inflation, stabilise markets, or act credibly in times of crisis is diminished. That perception makes investors nervous, particularly foreign holders of dollar-denominated debt. If they begin to question whether the Fed will always do what's economically prudent rather than politically expedient, they'll demand higher yields; or worse, take their money elsewhere. Protectionist policies President Trump's fresh round of tariffs and protectionist rhetoric that is further isolating the US in the global trade system. Import taxes, retaliatory tariffs from trading partners, and aggressive rhetoric about reshoring supply chains all have currency consequences. Tariffs may boost domestic producers in the short term, but they make US goods more expensive abroad and can dampen export growth. They also introduce friction into global supply chains, prompting multinational corporations to look elsewhere – particularly to regions where trade policies are more stable. All of this erodes global demand for the dollar, especially as a medium of exchange in international trade. Dedollarisation At the same time, countries around the world are accelerating efforts to reduce their reliance on the dollar. The BRICS coalition is actively exploring new trade settlement mechanisms that bypass the greenback entirely. China is signing bilateral deals in yuan. Central banks from Russia to Brazil are increasing their gold reserves as a hedge against dollar exposure. While the dollar is still dominant – for now – it is losing ground. The share of global reserves held in dollars has fallen to its lowest level in nearly 30 years, according to the IMF. As geopolitical tensions rise and US sanctions proliferate, more nations have a strategic incentive to move away from the dollar-centric system. Ballooning debt The US national debt has surpassed $36 trillion. That number on its own might not alarm investors who are used to large sovereign debt loads. But the context matters. With interest rates still relatively high, debt servicing costs are soaring. And with no credible long-term plan to rein in spending, markets are beginning to question the sustainability of US fiscal policy. The Congressional Budget Office now projects that interest payments alone will exceed military spending within two years. That's a flashing red light. If global investors start demanding higher returns to compensate for this risk – or worse, if they stop buying altogether – the dollar will have to adjust sharply to reflect diminished confidence in the US's fiscal management. All taken together, the evidence points to a prolonged period of dollar weakness. This doesn't mean a collapse. The dollar will remain central to global finance for the foreseeable future. But its role is being challenged, its value is being questioned, and its trajectory, I believe, is downward. Stockhead does not provide, endorse or otherwise assume responsibility for any financial advice contained in this article.
Arab Times
07-04-2025
- Health
- Arab Times
Kuwait's medical progress cuts need for overseas treatment: Minister
KUWAIT CITY, April 7: Minister of Health Dr. Ahmad Al-Awadhi stated that Kuwait's medical system has seen significant progress in recent years, with a notable reduction in the number of cases sent abroad for treatment. This improvement is attributed to the introduction of modern treatments and the training of local medical personnel in the latest internationally approved treatment protocols. Speaking at the opening of the Second Pediatric Hematology and Oncology Conference in Kuwait on Monday, Dr. Al-Awadhi highlighted that the conference, organized by the Department of Pediatric Hematology and Oncology at the National Bank of Kuwait Specialized Children's Hospital, serves as a prestigious platform for experts in this critical field. Dr. Al-Awadhi explained that the conference aims to foster knowledge exchange and research on the latest developments in the diagnosis and treatment of blood diseases and childhood cancers, with a particular focus on central nervous system tumors, including brain and nerve cancers. He also noted the conference's emphasis on lymphatic system tumors, such as lymphoma, one of the most common types of cancer among children, as well as advancements in diagnosing and treating both acute and chronic leukemia. The minister discussed the recent innovations in cellular and molecular therapies, including targeted immunotherapy using antibodies and CAR T-cell therapy, which represent significant advances in treating malignant tumors and improving recovery prospects. Dr. Al-Awadhi shared that recent local statistics from the Department of Hematology and Pediatric Oncology reveal approximately 120 childhood cancer cases are recorded annually in Kuwait, with 70 leukemia cases, 50 solid tumors, and 15 central nervous system tumors. These represent about 20 percent of the country's total cancer cases. He expressed pride in the department's pioneering work, particularly the introduction of immunotherapy, which has proven effective in treating nerve tumors, acute lymphoblastic leukemia, and addressing complications from blood diseases. This progress has led to improved response rates, fewer complications, and lower mortality rates, enhancing hopes for a healthier future for Kuwaiti children. In an interview with reporters, Dr. Al-Awadhi praised the ministry's full commitment to meeting the treatment needs of citizens and residents, emphasizing that the government spares no effort to ensure the availability of medications, regardless of cost. He also highlighted the ministry's plans to expand healthcare services and infrastructure, including the upcoming opening of maternity hospitals in the Al-Sabah Health District, a motherhood and childhood hospital in Adan, and a communicable diseases hospital. Additionally, a new emergency center in Al-Mutlaa and the Al-Wafra Specialized Clinic will open next week. Dr. Sondos Al-Sharida, Head of the Hematology, Pediatric Oncology, and Stem Cell Transplantation Department at the National Bank of Kuwait Specialized Children's Hospital, and President of the Kuwait Children's Association, delivered a speech during the conference, underscoring the humanitarian and moral commitment to children facing significant health challenges. She provided an overview of the department's operations, noting that the department has 64 beds, with a daycare ward comprising 12 beds. The department handles 1,154 annual admissions, 6,143 daycare admissions, and 3,588 emergency department cases. In addition, there are 5,554 outpatient clinic visits, 3,427 chemotherapy treatments, 450 therapeutic phlebotomy cases, and 750 surgical operations annually. Dr. Al-Sharida explained that the effectiveness of the current treatment system is reflected in the reduced length of hospital stays, which supports the quality of life for patients. She highlighted that the conference will cover both cancerous and non-cancerous diseases, with an emphasis on neurological tumors and other complex cases, as well as recent developments in blood cancer treatments. She also emphasized that the conference would showcase scientific workshops on the latest innovations in immunotherapies, therapeutic strategies for lymphomas, and how to manage their complications. Dr. Al-Sharida expressed hope that the conference would enhance medical skills and equip specialized personnel to keep pace with global advancements, ultimately improving the quality and efficiency of medical services in Kuwait.
Yahoo
22-02-2025
- Business
- Yahoo
Bank of Canada governor says trade war is different for the economy than COVID
The COVID-19 pandemic eventually brought a rapid recovery for the economy, but Bank of Governor Tiff Macklem says don't expect the same to happen if the country winds up in a trade war. He says trade tensions would mean less investment in the country from businesses and there's only so much monetary policy can do to help. (Feb. 21, 2025)
