Background

• According to Section 47 of the RBI Act, profit of the RBI has to be transferred to the government periodically.
• However, before transferring, some amount of the profit is kept aside for maintaining reserves of the RBI.

What constitutes RBI’s reserves?

• RBI’s reserves fall under four main heads: the Contingency Fund (CF), the Currency and Gold Revaluation Account (CGRA), the Asset Development Fund (ADF) and the Investment Revaluation Account (IRA).
• CF is the corpus created to take care of unexpected and unforeseen contingencies, including depreciation in the value of securities held, systemic risks and risks arising out of monetary and exchange rate policy operations. 
• The ADF corpus is meant to be drawn upon for investments in subsidiaries and to meet internal capital expenditure etc.
• Of these, the CGRA and the IRA are ‘notional’ in the sense that they are there to reflect the movements in the market prices of the asset classes (mainly gold, foreign currency and investments) to which they relate. No cash flow is involved in their case and the net credit balance in the CGRA account only indicates the unrealised or potential gain from the disposal by sale of those assets today.

Why in News?

• The board of the RBI has approved the transfer of ₹57,128 crore as surplus to the government for the accounting year 2019-20. It has decided to maintain a Contingency Fund of 5.5 percent as the minimum threshold as recommended by the Bimal Jalan committee.
• Last year, the central bank had transferred ₹1.76 lakh crore, which included ₹1.23 lakh crore as dividend and ₹52,637 crore of excess provisions.

Bimal Jalan Committee

• The Bimal Jalan Committee on Economic Capital Framework was set up in 2018 to assess the adequate size of capital reserves that the RBI should hold.

Recommendations of the committee:

• The committee, in its final report submitted in 2019, recommended that the RBI should maintain a Contingent Fund between 5.5-6.5% of the RBI’s total assets. 
• The committee also recommended transferring the full net income of the RBI of Rs 1,23,414 crore for the fiscal year 2018-19 to the Centre.

Reference:

1. https://www.thehindu.com/business/Economy/rbi-board-approves-transfer-of-57128-crore-as-surplus-to-govt/article32356075.ece