Net of the profit realised from the sale of its stake in the State Bank of India, the total income of the central bank soared by a hefty 56% to reach Rs 41,040 crore.
Allocation to contingency reserve rises by over Rs 10,000 crore
DNA Analysis
The details of the working of the Reserve Bank of India during 2006-07 contain quite a few surprises. Net of the profit realised from the sale of its stake in the State Bank of India, the total income of the central bank soared by a hefty 56% to reach Rs 41,040 crore. Income from deployment of both domestic and foreign assets rose appreciably - the former by 230% and the latter by 43%.
The central government too was a beneficiary of RBI's vastly improved "financial" performance. The transfer of the surplus reaped by the bank to the exchequer, after making the usual and necessary provisions, was of the order of Rs 11,411 crore as compared to Rs 8,404 crore in 2005-06.
To its credit, RBI also thought it prudent to beef up its contingency reserve, including the asset development reserve, by more than Rs 10,000 crore out of its income. As a proportion of the bank's assets, the share of the contingency reserve stood at 10.3% as of June 30, 2007 as compared with 10.0% a year ago. Despite this handsome allotment, this share now is lower than what it was as of June 2003.
At the dawn of this decade, RBI had spelt out an indicative target of 12% - though this point was not emphasised in latter years. Regrettably, determined efforts to attain this goal were apparently given a good bye.
Contingency reserve was intended to cope with unforeseen and unexpected crisis and provide the RBI with the corpus out of its income. Despite the fact, that 12% target has never been met. The bank feels the contingency reserve funds are adequate. With the Centre also seeking to garner for itself a lion's share of RBI profits, the inference is strong that RBI is going slow in augmenting this reserve as much as it would like to.
Increasingly in recent years, bulk of RBI's income is generated by foreign assets of the bank. In the latest accounting year, income under this head was sizable at Rs 35,153 crore or 86% of the total income. But, this year, domestic income also got a big boost - from Rs 1,782 crore to Rs 5,887 crore - due to lower provisioning for securities held by RBI and higher interest earned from the liquidity adjustment facility.
There was a bonanza of sorts in that the RBI was able to save on interest outgo on account of eligible CRR (cash reserve ratio) balances due to lower interest payment to banks for these. Moreover, no interest was payable effective from March 31, 2007 so that interest payment pertained to only nine months of the bank's accounting year. In sum, interest liabilities for the year fell to Rs 1,135 crore from the preceding year's 1,524 crore.
A factor behind the sharp spurt in income from foreign assets was the ever-rising level of foreign exchange reserves; the rise in overseas interest rates also helped in this higher earning from this source.
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