The transferable surplus for 2024-25 has been arrived at on the basis of the revised Economic Capital Framework (ECF) as approved by the Central Board.
- Key Sources of RBI’s Income: Income from interest on government securities, Net interest from liquidity management tools (e.g., Liquidity Adjustment Facility), Loans, Interest earned on foreign currency investments
About the Economic Capital Framework (ECF)
- Genesis: ECF was adopted by RBI in 2019, based on the recommendations of the Bimal Jalan Committee.
- The ECF is an integral part of the Enterprise-wide Risk Management (ERM) framework (2012).
- Concept: ECF provides a methodology for determining the appropriate level of risk provisions and profit distribution to be made under Section 47 of the RBI Act, 1934.
- Therefore, maintaining adequate provisions in the form of Economic Capital is crucial to absorb risks that may arise from any unforeseen events.
- Components of Economic Capital under ECF:
- Realized Equity: This consists of RBI’s Capital, Reserve Fund, Contingency Fund (CF), and Asset Development Fund (ADF).
- Contingent Risk Buffer (CRB): Component of RBI’s realized equity to provide for monetary and financial stability, credit, and operational risks.
- Revaluation Balances: The unrealized gains, net of losses, resulting from exchange rate, gold price and interest rate movements.
- Realized Equity: This consists of RBI’s Capital, Reserve Fund, Contingency Fund (CF), and Asset Development Fund (ADF).
- Tenure of the Framework: The Committee recommended the framework to be reviewed every 5 years.
Major Revisions in ECF
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