The Reserve Bank of India (RBI) will transfer Rs 99,122 crore as surplus to the central government for the nine months ended March 31 (July 2020-March 2021), it said in a statement on Friday.

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This is much higher than what most had estimated and what the government itself had budgeted for. Finance Minister Nirmala Sitharaman had earmarked a transfer of Rs 53,511 crore.

The transfer was approved on Friday, in the meeting of the regulator’s central board, during which the RBI’s annual report was also approved.

The central bank has changed its accounting period, aligning it with the fiscal calendar (April-March) from this year, instead of the earlier July-June calendar.

Therefore, the transfer of nearly a trillion rupees for just nine months of operation is surprising, though it will come as a huge respite to the government.

“The surplus to be transferred by the RBI to the Government of India is considerably higher than the budgeted level. This will offer a buffer to absorb the anticipated losses in indirect tax revenues during May-June, owing to the impact of state lockdowns on consumption on discretionary items and contact-intensive services,” said Aditi Nayar, chief economist of ICRA.

Direct tax collections are also expected to be soft, given the compression in demand.

How the RBI could transfer such a huge amount will be explained only after release of its annual report, but it was done keeping the rules of the Jalan Committee on the RBI’s economic capital intact.

The committee had recommended that the RBI maintain, at all times, a minimum contingency risk buffer of 5.5 per cent of its balance sheet, which the central bank did.

“It appears the RBI has recognised some gains from revaluation of its foreign currency assets,” said Ananth Narayan, senior India analyst at Observatory Group.

From FY2018-19, after the Jalan committee’s recommendation, the RBI changed its valuation policy to recognise gains from the sale of foreign currency against the historical weighted-average holding cost.

However, purchase of foreign currencies is treated separately, and any fresh purchase contributes to the weighted-average cost.

If one assumes all the RBI’s foreign currency reserves are in dollars, Narayan says the weighted-average holding cost for the dollar would be around Rs 55.70, going by last year’s annual report. Now, if the RBI sells those dollars at the current rate of Rs 72-73, healthy profits can be booked.

That’s exactly what the RBI has been doing of late. Since January and February, the RBI’s gross sales of foreign currency has surged.

In its May bulletin, data released by the RBI showed that it had net sold $5.7 billion during March.

Consequently, for the truncated fiscal year, the RBI has gross sold a record $85.2 billion and gross purchased $140.5 billion. Since the RBI values dollar sales separately than purchases, it had the freedom to book profits, which may have contributed to the healthy transfer, Narayan argued.

The high transfer also takes into account the record open market operations (OMO) conducted by the RBI in the last fiscal year. It had bought bonds worth Rs 3 trillion during the fiscal, on which it must have earned a healthy interest income from the government. This amount could have been repatriated back to the government.

The RBI had transferred Rs 57,128 crore to the government for the accounting year 2019-20.

The year before, the RBI had, based on the Jalan Committee formula, transferred a record Rs 1.76 trillion, which included Rs 1.23 trillion as dividend and Rs 52,637 crore of excess provisions.

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