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Time of India
28-05-2025
- Business
- Time of India
New capital framework gives RBI more room to handle its finances
The Reserve Bank of India (RBI) has taken a step to strengthen its financial resilience by revising its Economic Capital Framework (ECF) and risk provisioning norms. Approved by the RBI 's central board on May 15, 2025, these changes are designed to balance the central bank's need for robust financial buffers amid rising global uncertainties, while continuing to support the government's fiscal health through surplus transfers. Rozebud Gonsalves explains the ECF, why it is important, and its broader economic impact. What is the ECF and why is it important? The ECF is a structured mechanism implemented by the RBI to assess and determine the optimal level of risk provisions that the central bank needs to maintain. These provisions are made from the net revenue generated by the RBI through its daily operations. With this framework, the RBI arrives at its surplus earnings for the year that can be allocated as a dividend to the government of India. Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Gạch lát sàn cao su mới trong năm 2025 - Lắp đặt dễ dàng! Gạch | Quảng cáo tìm kiếm Tìm Ngay Undo The ECF was recommended by the Bimal Jalan Committee , chaired by former Reserve Bank of India governor Bimal Jalan, and was formally adopted in 2019. How does the RBI transfer its surplus income to the government? The ECF balances the need to maintain adequate financial buffers to ensure monetary and financial stability amidst global and geopolitical uncertainties with the goal of prudent surplus distribution. After making necessary adjustments for various provisions, asset revaluations, and risk buffers, the RBI transfers the residual income as surplus to the central government. Live Events What are the major changes in the latest revision? During its meeting held in mid-May 2025, the RBI's central board of directors reviewed and revised key components of the ECF. Monetary and financial stability risk buffer: The buffer range was expanded from 4.5-5.5% to 3.5-6.5% of the RBI's balance sheet size. Contingency risk buffer: The fixed buffer of 6.5% was replaced with a flexible range of 6% ± 1.5% (4.5% to 7.5%) of balance sheet size. What is the impact of the ECF on government finances? The revision of the framework is important as it affects a key source of income for the central government. When the RBI declares a dividend, it transfers a portion of its surplus profits to the central government, thereby directly increasing the government's income. The government can use this additional income either for increased spending or to reduce its borrowings, which in turn helps lower the fiscal deficit. The changes in buffers, while giving flexibility to the RBI, also increase the chances of a higher dividend transfer to the government. What does the new framework mean for the RBI? The ECF helps the RBI to strike a balance between retaining sufficient capital for financial stability and meeting the government's expectations for surplus transfers. The higher risk buffers ensure that the RBI has sufficient capital to absorb financial and market risks, especially during economic or external shocks, and only the surplus beyond these buffers is eligible for transfer to the government. It bolsters the central bank's credibility, autonomy, and ability to support the economy in times of stress. The prudent capital management framework allows the central bank to respond effectively to global and domestic economic uncertainties. How does the global economic environment impact a central bank's balance sheet? The global macroeconomic environment affects a central bank's balance sheet through changes in interest rates, capital flows, exchange rate volatility, inflation trends, and financial market stability. In response, central banks adjust their asset holdings, reserve levels, and liquidity operations, leading to expansion or contraction of their balance sheets.
Mint
26-05-2025
- Business
- Mint
RBI's ₹2.7 trillion: Many benefits arise from one big beautiful surplus
On Friday last, the Reserve Bank of India (RBI) announced its decision to transfer a record surplus of nearly ₹2.7 trillion for 2024-25 to the Indian government's coffers. The sum of ₹2,68,590.07 crore transferred is loosely referred to as the central bank's 'annual dividend,' but since it is not a commerce entity, this is actually the 'surplus' of its income over expenditure. It is 27% higher than the previous year's figure, despite an enlarged contingency risk buffer (CRB), as stipulated by the revised Economic Capital Framework (ECF) approved by RBI's Central Board. As against a CRB of 5.5-6.5% laid down by a panel led by former governor Bimal Jalan half a decade ago, the range has been widened to 4.5-7.5% of RBI's balance sheet. Rightly so. Also Read: Ajit Ranade: RBI's increasing fiscal support deserves a closer look That RBI was in the process of reviewing the ECF was known, but few may have expected the upper end to be raised. The CRB comprises three sub-buffers; while the norms were kept steady for credit risk and operational risk, the central bank's buffer for monetary and financial risk was reset at 3.5-6.5% from 4.5%-5.5% earlier. This is entirely in keeping with the principles of prudent central banking. The CRB, as the name suggests, is meant to take care of contingencies. So, from 2018-19 to 2021-22, a period that included an economic slowdown even before the pandemic disruption, RBI maintained its CRB at the 5.5% lower bound as part of its effort to support India's economy. It was upped to 6% for 2022-23 and further to 6.5% for 2023-24. And now, based on its assessment of 'macroeconomic conditions and other factors affecting the balance sheet of RBI," it has been raised to 7.5% for 2024-25. Also Read: Dividend from public sector cos may swell govt coffers by over ₹80,000 cr in FY26, all-time high A detailed analysis of RBI's income, expenditure and sources of surplus will have to await publication of its Annual Report for 2024-25. But it is fair to surmise that, as in the past, the bulk of its earnings last year came from its foreign exchange transactions in support of the rupee. The balance is likely to be from earnings on its holdings of foreign and domestic securities; in the latter case, as a result of open market operations to infuse liquidity into the banking system, which RBI did by buying bonds in cash from banks. The sale of dollars to prop the rupee's rate of exchange turned a 'profit' for it since the dollars sold during the year were acquired earlier at a much lower price. Some back-of-the-envelope math suggests that every dollar sold may have fetched RBI close to ₹6. Given the enlarged scale of its forex operations last fiscal year, its gains would have been substantial. Also Read: Mint Explainer: How RBI's new digital lending rules will impact lenders and borrowers But there is a flip side to this. Given that RBI payouts of such magnitude typically spring from heavy intervention on the rupee's behalf, there's a risk that the other side of the trade-off could get short shrift; a rupee that's too strong dulls the pricing edge of our exports, as the landed prices of Indian goods and services are higher overseas than they'd otherwise be. How best to manage the rupee, though, is a complex question involving various macro variables, so this debate is unlikely to be settled easily. What's doubtless is that the surplus transfer could help the Centre keep its fiscal deficit for 2025-26 within its 4.4%-of-GDP target in an economic scenario where slower growth could hurt its revenues. Both Mint Street and North Block have reason to be pleased with this mega surplus. With multiple benefits arising from it, it's good for the Indian economy.
Economic Times
24-05-2025
- Business
- Economic Times
RBI's Rs 2.68 lakh crore dividend bonanza beats govt estimate
Live Events (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel Mumbai: The central bank Friday declared a record surplus transfer of Rs 2.68 lakh crore for FY25 to the Centre--exceeding North Block's budget estimates of dividend receipts for this fiscal and beating the FY24 payout by nearly a third--and reworked the balance sheet-referenced distribution formula to make future payments more economic capital framework (ECF), which is the theoretical bedrock determining the payout range for a financial year, has been tweaked so as to ringfence the Reserve Bank of India 's ( RBI ) finances in times of financial Friday, the RBI Board raised the upper band of the Contingent Risk Buffer (CRB), now to be maintained within a significantly wider range of 7.5% to 4.5% of the central bank's balance band previously ranged from 6.5% to 5.5%.'This revised CRB range gives the RBI more room for future dividends,'' said Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership. 'With this payout, it is possible for the fiscal deficit to be lower by 10-20 basis points.'One basis point is 0.01 percentage dividend transfer to the government, based on the Bimal Jalan committee recommendations, has 'stood the test of time', and only some tweaking was required for the coming five years, said people familiar with the said at a time when the economy is seeing a steady, consistent growth rate, some alteration in dividend transfer formula may be required to suggest what the math should be for the next five years."The Bimal Jalan panel recommendations have stood the test of time, even during Covid... I don't see the panel formulations coming to such an end. Some kind of alterations will happen and RBI is working on it, maybe some tweaking (of the panel recommendations)...," said one of the ECF was adopted in August 2019 based on the Jalan-led Expert Committee announced fund transfer of Rs 2.68 lakh crore is 27% higher than the Rs 2.1 lakh crore paid to the government by its money manager last year. The budget, in February, had estimated receipts of Rs 2.56 lakh crore as dividend income from the RBI and other government financial the CRB was retained at 6.5%, as in the previous year, the surplus fund transfer could be Rs 3.5 lakh RBI's surplus transfer has become a key component in the government's management of fiscal balance. As the central bank's balance sheet and operations have been expanding, the transfers have also been increasing. Worried about a likely deterioration of the central bank's finances, a committee under former Governor Bimal Jalan was set up to prescribe a framework that was reviewed internally by the RBI recently. It has suggested new norms, including the widening of the contingency reserve buffer.'The extant ECF had met its objective of ensuring a resilient balance sheet for RBI, while maintaining a healthy transfer of surplus to the government,'' the RBI said in a statement Friday. 'Certain changes have, however, been made with the objective of further strengthening the framework to align better with any emerging risks.'The central bank said the changes to the framework Friday allow better risk management, especially in an uncertain trade environment globally.'The revised ECF provides requisite flexibility in the maintenance of risk buffers, considering the prevailing macroeconomic and other factors, while also ensuring needed intertemporal smoothing of the surplus transfer to the government,'' the RBI revised framework using a much wider reference frame allows flexibility and is more practical, experts said.'The decision to widen the Contingency Risk Buffer band to 4.5-7.5% of the balance sheet from 5.5-6.5% previously is pragmatic,'' said Anubhuti Sahay, head of India economic research, Standard Chartered Bank. 'It provides the RBI with the required flexibility to manage potential volatility in income generation and the objective of financial stability and allows for better predictability on dividend transfer to the government and thus fiscal deficit planning.'The Jalan committee recommended a capital framework that served well for the RBI as well as the government as it ended a controversy over how much surplus the central bank could keep with itself. Former Chief Economic Advisor Arvind Subramaniam first raised the issue years ago when the government was facing a tough fiscal situation that led to disputes with the revised framework also includes factoring in the market risks associated with the off-balance items of the central bank into the capital framework, it of the central bank also do not remain the same as its positions in the market determine whether its trades in the money and forex markets turn profitable. After Covid, many central banks have slipped into losses, and some of them have skipped transferring any surplus to their governments because of lack of any gains.'The same kind of revenue may not always be expected in the future and hence cannot be called a new normal as forex sales may not be as large as this year,'' said Madan Sabnavis, economist, Bank of Baroda. 'But, on the other hand, if buffers are lowered when conditions are normal, then there could be earnings from this side.'Under the new framework, the central bank could transfer all of the realised equity above the 7.5% contingency buffer, while not transferring any when it falls below the lower respect to the Surplus Distribution Policy, any available equity in excess of 7.5% of the balance sheet (after considering shortfall in market risk buffers, if any) may be written back from the Contingency Fund to income, the RBI said.'In case the available equity is below the lower bound of its requirement, no surplus will be transferred to the government until at least the minimum level of Required Realised Equity is achieved,'' the RBI said.
Entrepreneur
24-05-2025
- Business
- Entrepreneur
RBI Approves Record INR 2.69 Trillion Surplus Transfer to Government Amid Wider Risk Buffer
This is the second consecutive year the RBI has transferred a record surplus. In FY24, it had remitted INR 2.11 trillion to the Centre while maintaining a 6.5 per cent CRB Opinions expressed by Entrepreneur contributors are their own. You're reading Entrepreneur India, an international franchise of Entrepreneur Media. The Reserve Bank of India (RBI) on Friday announced a record surplus transfer of INR 2.69 trillion for the financial year 2024-25. The decision, made during a meeting of the central board, came even as the RBI raised its contingent risk buffer (CRB) to the upper limit of a newly expanded range under a revised Economic Capital Framework (ECF). According to information released by the RBI, the CRB has now been broadened from the earlier 5.5-6.5 per cent range to 4.5-7.5 per cent of the central bank's balance sheet, providing more flexibility in managing risks and future payouts. The buffer for FY25 has been pegged at 7.5 per cent—the highest end of the new band. This is the second consecutive year the RBI has transferred a record surplus. In FY24, it had remitted INR 2.11 trillion to the Centre while maintaining a 6.5 per cent CRB. The transferable surplus is calculated based on the ECF adopted in 2019, following the recommendations of the Bimal Jalan-led Expert Committee. As per the framework, the RBI must undertake a review every five years, which culminated in the current revisions. "Based on the revised Economic Capital Framework, and taking into consideration the macroeconomic assessment, the Central Board decided to further increase the CRB to 7.50 percent," the RBI said in its statement. Despite the increased provisioning, the central bank's higher surplus this year was made possible by substantial profits from aggressive dollar sales. Gross foreign exchange sales hit $399 billion in FY25, sharply up from $153 billion the previous year. On a net basis, the RBI sold $34.5 billion—its highest since the 2008-09 global financial crisis—capitalizing on the lower historical cost of its dollar reserves versus prevailing market rates. Market expectations, however, had leaned towards an even higher transfer, closer to INR 3 trillion, had the CRB been retained at last year's level. Still, the RBI emphasized the need for balance. "The revised ECF provides requisite flexibility year-on-year... while also ensuring needed inter-temporal smoothing of the surplus transfer to the government," the RBI noted, underlining the framework's resilience against evolving external and domestic risks. The central bank's annual report, due shortly, will provide a detailed breakdown of this year's balance sheet, including the exact composition of the Available Realised Equity (ARE), which stood at INR 4.58 trillion, or 6.5 per cent of the balance sheet, in FY24.
Time of India
24-05-2025
- Business
- Time of India
RBI declares 27% higher dividend on higher capital provision
The RBI has declared a record surplus transfer of Rs 2.68 lakh crore to the Centre for FY25, exceeding budget estimates. The economic capital framework has been tweaked, widening the Contingent Risk Buffer range to 4.5-7.5% of the balance sheet. This revision allows for better risk management and more predictable dividend transfers to the government. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads The central bank Friday declared a record surplus transfer of Rs 2.68 lakh crore for FY25 to the Centre – exceeding North Block's budget estimates of dividend receipts for this fiscal and beating the FY24 payout by nearly a third - and reworked the balance sheet-referenced distribution formula to make future payments more economic capital framework (ECF), which is the theoretical bedrock determining the payout range for a financial year, has been tweaked so as to ringfence the Reserve Bank of India 's ( RBI ) finances in times of financial Friday, the RBI Board raised the upper band of the Contingent Risk Buffer (CRB), now to be maintained within a significantly wider range of 7.50 to 4.50 per cent of the central bank's balance sheet. The band previously ranged from 6.5 percent to 5.5 percent.'This revised CRB range gives the RBI more room for future dividends,'' said Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership. ``With this payout, it is possible for the fiscal deficit to be lower by 10-20 basis points.'One basis point is 0.01 percentage dividend transfer to the government, based on the Bimal Jalan committee recommendations, has "stood the test of time," and only some tweaking was required for the coming five years, a government official announced fund transfer of Rs 2.68 lakh crore is 27% higher than the Rs 2.1 lakh crore paid to the government by its money manager last year. The budget, in February, had estimated receipts of Rs 2.56 lakh crore as dividend income from the RBI and other financial institutions North Block the CRB was retained at 6.5%, as in the previous year, the surplus fund transfer could be Rs 3.5 lakh RBI's surplus transfer has become a key component in the government's management of fiscal balance. As the central bank's balance sheet and operations have been expanding, the transfers have also been increasing. Worried about a likely deterioration of the central bank's finances, a committee under former Governor Bimal Jalan was set up to prescribe a was reviewed internally by the RBI recently and that has suggested new norms, including the widening of the contingency reserve buffer."The extant ECF had met its objective of ensuring a resilient balance sheet for RBI, while maintaining a healthy transfer of surplus to the Government,'' the RBI said in a statement Friday. ``Certain changes have, however, been made with the objective of further strengthening the framework to align better with any emerging risks.'The central bank said the changes to the framework Friday allows better risk management, especially in an uncertain trade environment globally.'The revised ECF provides requisite flexibility in the maintenance of risk buffers, considering the prevailing macroeconomic and other factors, while also ensuring needed intertemporal smoothing of the surplus transfer to the government,'' the RBI revised framework using a much wider reference frame allows flexibility and is more practical, experts said.'The decision to widen the Contingency Risk Buffer band to 4.5-7.5% of the balance sheet from 5.5-6.5% previously is pragmatic,'' said Anubhuti Sahay, head of India economic research, Standard Chartered Bank. ``It provides the RBI with the required flexibility to manage potential volatility in income generation and the objective of financial stability and allows for better predictability on dividend transfer to the government and thus fiscal deficit planning.'The Jalan committee recommended a capital framework that served well for the RBI as well as the government as it ended a controversy over how much surplus the central bank could keep with itself. Former Chief Economic Advisor Arvind Subramaniam first raised the issue years ago when the government was facing a tough fiscal situation that led to disputes with the revised framework also includes factoring in the market risks associated with the off-balance items of the central bank into the capital framework, it of the central bank also do not remain the same as its positions in the market determine whether its trades in the money and forex markets turn profitable. After Covid, many central banks have slipped into losses, and some of them have skipped transferring any surplus to their governments because of lack of any gains.'The same kind of revenue may not always be expected in the future and hence cannot be called a new normal as forex sales may not be as large as this year,'' said Madan Sabnavis, economist, Bank of Baroda . ``But, on the other hand, if buffers are lowered when conditions are normal, then there could be earnings from this side.'Under the new framework, the central bank could transfer all of the realised equity above the 7.5 percent contingency buffer, while not transferring any when it falls below the lower respect to the Surplus Distribution Policy, any available equity in excess of 7.5% of the balance sheet (after considering shortfall in market risk buffers, if any) may be written back from the Contingency Fund to income, the RBI said."In case the available equity is below the lower bound of its requirement, no surplus will be transferred to the government until at least the minimum level of Required Realised Equity is achieved,'' the RBI said.
