Explained: Contingency Fund of the Reserve Bank of India(RBI)

3 min read

News: The Reserve Bank of India(RBI) has retained a whopping amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund(CF) of the central bank.

Facts:

  • How much has RBI transferred to the Government? The RBI has approved the transfer of Rs 57,128 crore as surplus or dividend to the Central government for the accounting year 2019-20.
  • How was this transferred? This was transferred as per the economic capital framework(ECF) adopted by the RBI board in 2019.
    • As per Section 47 of the RBI Act, profits or surplus of the RBI are to be transferred to the government after making various contingency provisions, public policy mandates of the RBI, including financial stability considerations.

RBI’s risk provision accounts: The RBI’s main risk provision accounts are-:

  • Contingency Fund(CF): This 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, 
    • Systemic risks and any risk arising on account of the special responsibilities enjoined upon the Reserve Bank. 
  • Currency and Gold Revaluation Account(CGRA): It is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.
    • CGRA provides a buffer against exchange rate/ gold price fluctuations.It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
  • Investment Revaluation Account Foreign Securities(IRA-FS): The unrealized gains or losses on revaluation in foreign dated securities are recorded in the IRA-FS account.
  • Investment Revaluation Account-Rupee Securities(IRA-RS): The unrealized gains or losses on revaluation is accounted for in Investment Revaluation Account-Rupee Securities(IRA-RS).