Many benefits flow from one big beautiful surplus

The record transfer of RBI's surplus to the Centre despite an enlarged contingency buffer strikes a fine balance between caution and heedfulness. It strengthens both RBI and the fisc

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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. 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 w