Why in the News?

The RBI may transfer a record ₹2.5–₹3 lakh crore surplus for 2024–25 after its recent review of its Economic Capital Framework (ECF).

About Surplus Transfer by RBI:

Legal Basis: Under Section 47 of the RBI Act, 1934, the RBI must transfer its net surplus from its income to the central government.
Tax Exemption: As per Section 48, the RBI is exempt from income tax and direct taxes.
Timeline: RBI has recently changed its accounting year from June-July to April-May.
Recent Transfers: In 2023–24, RBI transferred a record ₹2.11 lakh crore; estimates for 2024–25 range between ₹2.5 and 3 lakh crore.
Reserve Allocation: Some surplus may be set aside for contingency or asset development funds.
Policy Debate: The government often seeks higher transfers, while the RBI stresses on maintaining financial stability and autonomy.
Past Disagreements: Tensions have occurred but are usually resolved through mutual agreement.

Foreign Investments: RBI earns returns from investing in foreign government bonds, treasury bills, and deposits with other central banks.
Domestic Bonds: It receives interest on Indian government securities (G-secs) held in its portfolio.
Bank Lending: Income is earned by lending short-term funds to commercial banks via repo operations.
Commission Services: The RBI charges commissions for managing borrowings and public debt for the central and state governments.
Main Expenditure: Costs include printing currency, staff salaries and pensions, bank commissions, and dealer fees.
Net Surplus: The surplus is what remains after expenses, provisions, and reserves are accounted for.

Purpose: The ECF guides how much capital RBI must retain and how much surplus can be transferred.
Y.H. Malegam Committee (2013): It reviewed the adequacy of reserves and surplus distribution policy in 2013, recommended a higher transfer to the government.
Introduction: Finalised in 2019, based on a committee led by Bimal Jalan.
Goal: Seeks to balance government funding needs with RBI’s financial resilience.
Reserve Components: Defines key buffers like the Contingency Risk Buffer (CRB), Revaluation Reserves, and Asset Development Fund.
Minimum CRB: Requires at least 5.5% of RBI’s balance sheet to be held as contingency reserve.
Transfer Stability: Allows for more consistent surplus transfers when RBI’s earnings are strong.

[UPSC 2021] In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following:

1.Lending to trade and industry bodies when they fail to borrow from other sources.

2.Providing liquidity to the banks having a temporary crisis.

3.Lending to governments to finance budgetary deficits.

Select the correct answer using the code given below:

Options: (a) 1 and 2 (b) 2 only * (c) 2 and 3 (d) 3 only