CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Reserve Bank of India (RBI) has revised its Economic Capital Framework (ECF), introducing greater adaptability in how it manages surplus funds transferred to the government. The updated framework aims to uphold fiscal stability, especially during periods of economic uncertainty. A key modification is the expansion of the Contingency Risk Buffer (CRB) range, now set at 4.5% to 7.5%, compared to the earlier 5.5% to 6.5%.
Record Surplus Transfer To Government
In a significant financial move, the RBI’s Central Board approved a surplus transfer of Rupees 2.69 trillion to the central government for the financial year 2024–25. This decision was made while maintaining the CRB at its newly raised upper limit of 7.5%. The notable increase in surplus is largely attributed to the central bank’s strong foreign exchange earnings, with gross dollar sales soaring from $153 billion in FY24 to $399 billion in FY25.
Growth In Earnings And Asset Revaluation
The RBI’s improved earnings performance stems from higher interest income on government securities and reduced provisioning for valuation losses. These factors, along with possible mark-to-market gains on its foreign and domestic assets, have contributed to a healthier balance sheet. Such robust financial management has enabled the central bank to transfer a record surplus while maintaining strong reserves.
Evolution Of CRB Over Time
The CRB has seen multiple revisions over the past years. It remained at 5.5% from FY19 to FY22, rose to 6% in FY23, and was further increased to 6.5% in FY24. The latest revision to 7.5% reflects the RBI’s strategy to create room for manoeuvring amid evolving macroeconomic conditions. The flexible CRB range allows the RBI to adjust its reserves according to the financial landscape.
Expert Recommendations And Future Strategy
The revised framework aligns with the recommendations made by a committee chaired by former RBI Governor Bimal Jalan, which had advised reviewing the ECF every five years. Going forward, the RBI plans to reinforce the framework to better account for emerging financial risks and maintain a sound capital position.
Wider Economic Impact
The latest revisions are expected to enhance the RBI’s capability to manage fiscal transfers effectively. Given the historical volatility in surplus amounts from Rupees 2.1 trillion in FY24, the highest to date, to a mere Rupees 30,000 crore in FY22, the lowest in over a decade the widened CRB range offers the RBI greater resilience in balancing government support with prudent financial management.
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