Economic Capital Framework

Source-This post on RBI to Transfer ₹2,10,874 Crore Surplus to Centre for FY24 has been created based on the article “RBI to transfer ₹2,10,874 cr. surplus to Centre for FY24” published in “The Hindu” on 23 May 2024.

Why in News?

Recently, the Reserve Bank of India’s board approved the transfer of a record ₹2,10,874 crore surplus to the Union government for the fiscal year 2023-24.

About Record Surplus Transfer

1. The Reserve Bank of India (RBI) has approved a record transfer of ₹2,10,874 crore as surplus to the Union government for the fiscal year 2023-24. This amount is more than double the amount transferred in the previous fiscal year (FY23). The RBI Board also decided to increase the Contingent Risk Buffer (CRB) to 6.50% for FY24, up from 6% in the previous year.

Fiscal Impact of transfer: It would have following impact:

a) The substantial surplus transfer is expected to aid the Centre’s fiscal consolidation efforts.

b)  This will also help to keep the fiscal consolidation program on track.

2. The surplus was calculated based on the Economic Capital Framework (ECF) adopted by the RBI on August 26, 2019.

About Economic Capital Framework (ECF)

1. The economic capital framework provides a methodology for determining the appropriate level of risk provisions and profit distribution to be made under Section 47 of the RBI Act, 1934.

As per this provision, the central bank is required to pay the balance of its profits to the central government after making provision for bad and doubtful debts, depreciation in assets, and contributions to staff.

2. This framework was recommended by the Expert Committee to Review the Extant Economic Capital Framework of the Reserve Bank of India.

UPSC Syllabus: Indian Economy