How Has RBI’s Income More Than Doubled in FY 2019?

The Reserve Bank of India (RBI) on Thursday, 29 August, released its annual report for the financial year 2018-19, in which it raised concerns over the credit flow from non-banking financial companies (NBFCs) and the lack of domestic demand.

Ananth Narayan, professor of SP Institute of Management and Research, Mumbai while speaking to the BloombergQuint outlined two reasons which explain the increase in RBI's income this year:

• RBI has not taken anything into the contingency fund . Last year, they had Rs 14,000 crore which they set aside as contingency fund, and this year because of Bimal Jalal Committee's recommendations, there has been no need to increase it.
• Last year, there were a lot of open market operations conducted by the RBI amounting to Rs 3.5 lakh crores. Clearly, the interest that accrues against those bond holdings go back to the government as revenue.

The RBI's contingency fund was one of the key numbers under the scanner in the central bank's annual report after it transferred a record sum of Rs 1.76 lakh crore as surplus to the government recently.

‘Anomalous’ Foreign Exchange Accounting

In regard to the foreign currency accounting, he said the way RBI has been accounting its FX operations is anomalous since a lot of years.

Explaining the anomalies in the accounting, he said that as the value of the FX operations change, the rupee value also goes up, and that is taken as an accounting entry.

He added that last year, that number stood at 6.9 trillion, which has an element of ‘recognised income’ and not just a ‘notional income’.

Now, RBI has chosen a more conventional accounting method which has led to it acquiring profit on dollars.

The RBI seems to have recognised up to Rs 40,000 crores of profit from the sale of dollars during last year from July to December, stated Narayan.

He said, “Every sale of dollars that they undertake, would have helped them to recognise some of the currency  profit and loss.”

RBI has now moved to an inventory kind of valuation where they look at the weighted average cost at which they have purchased the dollars over time, and every sale is seen as a recognition of profit from the weighted rate to where they actually sell this.