RBI’s huge surplus transfer: Largesse in need of an explanation

livemint.com:

₹2.1 trillion, the surplus (note, not dividend, since RBI is not a commercial entity) is the highest-ever payout by the central bank, and more than double the previous year’s ₹86,416 crore. This is good news. Especially since the transfer has been done after beefing up RBI’s contingency risk buffer (CRB) to the upper end of the band (5.5-6.5% of its balance sheet) suggested by the 2019 Bimal Jalan committee.

This panel, tasked with setting out an ‘economic capital framework’ for the central bank, had laid down clear guidelines on how RBI’s surplus should be apportioned between transfers to its reserves and to its owner, the government. To the extent that the latest transfer is in line with the Jalan panel’s recommendations, this should ordinarily be reason to cheer. Except that there is a fine line between a central bank’s surplus and that of a corporate entity.

It is important to keep this in mind for any analysis of RBI’s numbers. The very use of terms such as ‘surplus’ rather than ‘profit’ and ‘income and expenditure’ instead of ‘profit and loss’ (for a statement) in the context of the central bank, in contrast with commercial banks, reflects this difference. It is precisely for this reason that we must not rest content with only the headline number, but look for factors that contributed to the sharp rise in RBI’s surplus.

Unfortunately, we are up against a blank wall on this. RBI’s Wednesday press release on the 608th meeting of its central board that approved the ₹2.1 trillion plus transfer to the Centre’s coffers has no details beyond this terse statement: “As the economy remains robust and resilient, the Board has decided to increase the CRB to 6.50 per cent for FY 2023-24. The Board thereafter approved the