The Board of the Reserve Bank of India (RBI) approved a record surplus transfer to the Central Government. The dividend is of Rs 2.69 lakh crore for the accounting year 2024-25.

LEARNING FROM HOME/ WITHOUT CLASSES/ BASICS

The Reserve Bank of India is the supreme monetary and banking authority in the country. It called a Reserve Bank because it keeps the cash reserve of all scheduled banks.

It established on April 1, 1935. Since its nationalization in 1949, the Reserve Bank fully owned by the Government of India

The Reserve Bank of India’s main function includes; formulating, implementing, and monitoring the monetary policy, prescribing broad parameters of banking operations within which the country’s banking and financial system functions, Managing the Foreign Exchange Management Act, 1999, Issues and exchanges or destroying currency and coins not fit for circulation, Banker to the Government: performs merchant banking function for the central and the state governments. Also acts as their banker.

Reserve Bank of India  Governor Sanjay Malhotra

BANK RATE: It is a rate of interest at which the central bank lends money to the lower bank. It is a quantitative method of credit control.

REPO RATE:  Also known as repurchased auction.  The government repurchases government securities when there is a liquidity shortage. It adds liquidity to the market. The rate at which RBI lends money to commercial banks against the pledge of government securities whenever the banks need funds to meet their day-to-day obligations.

                       REVERSE REPO RATE

When the government sells dated government securities to banks to suck considerable liquidity in the market. Both repo and reverse repo rates are liquidity Adjustment Ratios (LAR).

                         MONETARY POLICY

 Monetary policy the macroeconomic policy laid down by the central bank. It involves the management of money supply and interest rate. The government use it to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. Monetary policy can be expansionary and contractionary. Increasing the money supply and reducing interest rates indicate an expansionary policy. The reverse of this is a contractionary monetary policy.

It transfer the “surplus” – that is, the excess of income over expenditure. It makes provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation fund [and for all other matters for which] provision is to be made by or under this Act or which are usually provided for by bankers, the balance, of the profits shall be paid to the Central Government. As per the 2019 Bimal Jalan Committee, RBI should maintain Contingency Risk Buffer(CRB) to the upper end of the band. (5.5-6.5 % of its balance sheet).

RBI carries out its mandated functions or operations and registers profits. The RBI registers profit/income from

• The returns it earns on its foreign currency assets. In the form of bonds and treasury bills of other central banks. Top-rated securities, and deposits with other central banks.
• It also earns interest on its holdings of local rupee-denominated government bonds or securities.
• Earns interest on lending to banks for very short tenures, such as overnight
• It claims a management commission on handling the borrowings of state governments and the central government.
•  

Y H Malegam committe , which reviewed the adequacy of reserves and a surplus distribution policy,

CONCLUSION

RBI balance sheet should be with a higher provisioning and not to support the government with a quasi fiscal deficit.

It isn’t wise to use RBI reserves for the government’s expenditure needs. It was said that this money serves as cushion during times of financial catastrophe.