Latest news with #ContingencyRiskBuffer
&w=3840&q=100)
Business Standard
26-05-2025
- Business
- Business Standard
Widening of CRB range aimed at smoothening surplus transfer to govt
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.'
Scroll.in
24-05-2025
- Business
- Scroll.in
RBI board approves surplus transfer of Rs 2.6 lakh crore to Centre for 2024-'25
The Reserve Bank of India's board on Friday approved a transfer of Rs 2.6 lakh crore as surplus to the Union government for the financial year 2024-'25. Every year, the central bank pays a dividend to the government to help with the finances from its surplus or profit. It serves as a key source of revenue for the government. This was the central bank's highest annual surplus, or dividend transferred to the government, The Indian Express reported. The transfer comes amid global financial uncertainty and trade negotiations with the United States, which could hurt future customs duty revenues, according to Moneycontrol. Based on the economic outlook, the central bank's board also said that it has decided to raise the Contingency Risk Buffer to 7.5%. The buffer is a fund maintained by the Reserve Bank of India mainly for use in contingencies. The central bank had kept the buffer at 5.5% of its balance sheet between 2018-'19 and 2021-'22 to help support the economy during tough economic conditions and withstand the impact of the Covid-19 pandemic. As economic growth improved in 2022-'23, the buffer was raised to 6% and was increased to 6.5% in 2023-'24.
Business Upturn
23-05-2025
- Business
- Business Upturn
RBI to transfer Rs 2.69 lakh crore surplus to Government for FY25, contingency risk buffer raised to 7.5%
In a key financial decision, the Reserve Bank of India (RBI) has announced a surplus transfer of ₹2.68 lakh crore (₹2.69 trillion) to the Central Government for the financial year 2024-25. The decision was taken during the 616th meeting of the Central Board of Directors held on May 23, 2025, under the chairmanship of RBI Governor Sanjay Malhotra. This marks one of the largest ever transfers made by the central bank, a move that could significantly bolster the government's fiscal resources in the current financial year. Revised Economic Capital Framework (ECF) and CRB The surplus calculation was made in accordance with the newly revised Economic Capital Framework (ECF) approved on May 15, 2025. Under the revised ECF, the Contingency Risk Buffer (CRB) — a key risk provisioning measure — has been raised to 7.50% of the RBI's balance sheet, up from 6.5% in FY24 and 6% in FY23. The permissible CRB range is now defined as 5.0% ± 1.5%. During the COVID-19 pandemic and the years following, the CRB was maintained at a conservative 5.50% to support economic stability. The latest revision comes in light of improved macroeconomic conditions and a stronger balance sheet position. Policy Implication According to the RBI's revised ECF, no further surplus transfers will be made until the minimum required level of realised equity is achieved. This policy ensures that the RBI retains adequate buffers for monetary and financial stability risks. This significant surplus transfer, coupled with the increase in CRB, indicates a balancing act between supporting government finances and maintaining monetary stability amid evolving economic dynamics. Aditya Bhagchandani serves as the Senior Editor and Writer at Business Upturn, where he leads coverage across the Business, Finance, Corporate, and Stock Market segments. With a keen eye for detail and a commitment to journalistic integrity, he not only contributes insightful articles but also oversees editorial direction for the reporting team.
Indian Express
15-05-2025
- Business
- Indian Express
RBI Board reviews Economic Capital Framework; dividend to govt may rise up to Rs 3 lakh crore
The central board of directors of the Reserve Bank of India (RBI) on Thursday reviewed the Economic Capital Framework (ECF), which is used to determine risk provisioning and surplus distribution by the central bank to the government. Based on the ECF, the RBI transfers dividend to the government every year. According to various estimates, the RBI may transfer Rs 2.5 lakh crore to Rs 3 lakh crore as surplus to the government for the accounting year 2024-25. This would be a fresh record dividend transfer by the RBI to the government. For the accounting year 2023-24, the RBI had transferred the highest-ever surplus transfer of Rs 2.11 lakh crore to the government The central board of the RBI is likely to meet on May 23 to determine the dividend amount to be transferred to the government for FY25, in line with the revised Economic Capital Framework. 'The 615th meeting of the Central Board of Directors of the RBI was held today in Mumbai under the Chairmanship of Sanjay Malhotra, Governor. As part of the agenda, the Board reviewed the Economic Capital Framework (ECF) of the RBI,' the central bank said on Thursday. Higher dividend payout by the RBI will help the government in managing the fiscal deficit. The higher surplus transfer is also likely to improve liquidity conditions in the system. The RBI transfers surplus to the government from its profit after setting aside Contingency Risk Buffer (CRB). The RBI's CRB is the country's savings for a 'rainy day' (a financial stability crisis) which the central bank consciously maintained in view of its role as Lender of Last Resort (LoLR). In FY25, the central bank's earnings in FY25 were robust, led mainly by sale of dollars to curb volatility in the rupee and sharp rise in gold prices and appreciation in prices of government securities held by the RBI. 'With the announcement of the RBI dividend this month, we expect banking liquidity to be approximately Rs 6 lakh crore. Such high banking liquidity could lead to higher rally at the short end of the curve,' as per a recent report by Axis Mutual Fund. An expert committee led by Bimal Jalan, former RBI Governor, was set up in November 2018, to review the ECL framework of the RBI. In August 2019, the RBI had adopted the recommendations of the expert committee on ECF. The committee had suggested that the RBI's contingency risk buffer (CRB) should be maintained in a range of 5.5 per cent to 6.5 per cent of the central bank's balance sheet. In FY24, the RBI's contingency provisioning was around Rs 42,800 crore. In 2022-23, the RBI's dividend to the government was Rs 87,416 crore. In 2021-22, the RBI transferred a surplus of Rs 30,307 crore, which was the lowest in 10 years. The RBI paid Rs 99,122 crore as dividend to the government in FY2021. During the accounting year 2019-20, Rs 57,128 crore of surplus was transferred to the government. The Jalan committee had also recommended that the framework may be periodically reviewed every five years. Accordingly, the ECF review was scheduled for August 2024.
