Mumbai, August 31, 2017

The reason behind the Reserve Bank of India transferring a much smaller surplus to the government was a sharp rise in the central bank’s expenditure and a decline in income in 2016-17.

The RBI transfer to the government during the year stood at Rs 30,659 crore, less than half of Rs 65,876 crore in the previous fiscal. The RBI saw a 107.8% increase in expenditure to Rs 31,155 crore in 2016-17, while net domestic income fell by 17.11% to Rs 43,232 crore, data from the central bank’s annual report published on Wednesday showed.RBI’s expenditure shot up largely because of a sharp rise in provisions and the cost of printing currency notes, it said in the annual report, while higher interest costs on account of reverse repo auctions dented income. In 2016-17, provisions increased to Rs 13,190 crore from Rs 1,000 crore in the previous fiscal. Of total provisions, Rs 13,140 crore was for transfer to the contingency fund.

Provision of Rs 50 crore was made for capital contribution in Reserve Bank Information Technology Pvt. Ltd. and transferred to the asset development fund. Contingency fund represents the amount set aside on a year-to-year basis for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary or exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the bank. Expenditure for printing of notes more than doubled to Rs 7,965 crore from Rs 3,421 crore a year earlier. “Supply of notes during the year at 2,904.3 crore pieces was 37% higher than the total supply during previous year. Supply of higher denomination notes during 2016-17 was 1,370.2 crore pieces, higher by 160%,” the annual report said.

The RBI incurs expenditure in the course of performing its statutory functions by way of agency charges, commission, printing of notes, expenses on remittance of treasure besides staff related and other miscellaneous expenses. The central bank said income from domestic sources declined mainly due to higher spending on interest under the liquidity management facility to absorb surplus liquidity in the banking system after the government banned Rs 1,000 and Rs 500 notes in November last year. Net interest loss on liquidity adjustment facility operations stood at Rs 17,426 crore during the year, compared with gain of Rs 506 crores in the year-ago period. Interest gain on marginal standing facility was Rs 60 crore, compared with Rs 132 crore in the previous year.

“The decrease in net interest income on LAF/MSF operations was on account of higher expenditure on interest payment under reverse repo in 2016-17 due to absorption of surplus liquidity in the banking system post withdrawal of Specified Bank Notes (SBNs),” the RBI said.

[The Financial Express]