The surplus that the Reserve Bank of India transferred to the government in the last fiscal year fell sharply mainly due to a jump in expenditure, which was led by interest payments to banks on their excess funds parked with it, the bank’s annual report showed.
While income for 2021-22 increased by 20%, expenditure rose by 280%, which resulted in the overall surplus transferred to the government decreasing 69% to INR 30,307.45 crore from INR 99,122 crore in 2020-21.
Apart from the higher operational expenditure, the RBI also had to pay interest on the excess funds kept by banks with it through the reverse repo window. This interest outgo nearly doubled to INR 35,601 crore at the end of March 2022 from INR 17,958 crore a year ago.
Total expenditure in 2021-22 increased to INR 1.29 lakh crore from INR 34,147 crore in the previous year. Expenditure included agency commissions to banks for processing government receipts and payments, which increased by 48% to INR 3,859 crore from INR 2,611.05 crore in 2020-21. Expenditure incurred on printing of bank notes increased by 24% to INR 4,985 crore from INR 4,012.09 crore in 2020-21.
Madan Sabnavis, chief economist at Bank of Baroda, said the central bank also had to make higher provisions towards revaluation of forex reserves. “A lower transfer to the government account means that the government will fall short of its INR 74,000 crore collection target from RBI, banks and other state-owned financial institutions,” Sabnavis said. “However, higher tax revenues and proceeds from disinvestments may compensate for this.”
All Expenditure Lines Impacted
Banks will be paying INR 7,867 crore to the government as dividend.
“The net interest income from liquidity adjustment facility (LAF)/marginal standing facility (MSF) operations decreased…due to higher surplus liquidity in the banking system, leading to higher net interest outgo under LAF/MSF and current accounting year being of twelve months as compared to the nine months period for 2020-21,” the RBI said.
All expenditure lines were impacted because last year the RBI transitioned to a March closing fiscal year, making it a nine-month year. In 2021-22, provisions of INR 1.14 lakh crore and INR 100 crore were made towards transfer to the contingency fund (CF) and the asset development fund (ADF), respectively.
The CF is a specific provision meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary / exchange rate policy operations, and systemic risks. The balance in CF as on March 31, 2022 was INR 3.10 lakh crore, up from INR 2.84 lakh crore a year ago. The money in the ADF is the provision specifically made till date towards investments in subsidiaries and associate institutions, and to help meet internal capital expenditure. Last fiscal, INR 100 crore was provided on account of new investment in Reserve Bank Innovation Hub (RBIH).
The balance in the ADF as on March 31, 2022 was INR 22,974.68 crore compared with INR 22,874.68 crore a year ago.