Financial Awareness for RBI Grade ‘B’ Officer Exam: ‘RBI’s Dividend transfer Policy’

Aug 25, 2016 09:06 IST

It is observed that in banking examinations, terms with special reference to Banking are regularly asked. These terms are useful for written examination as well as interview of almost every banking examination.  Aspirants are advised to read current news related banking industry on regular basis to enhance their overall general knowledge.

Here the banking team of Jagran josh is providing brief information on RBI’s Dividend transfer Policy’. The term is important for RBI Grade B exam, IBPS PO Mains exam, BOB recruitment exam through Post Graduate Certificate in Banking and Finance course and other banking exams.

How does the central bank earn its surplus income?

The three main sources of RBI’s income are the coupon payments it gets on its holding of government securities, the interest it receives from banks which borrow money from it (repo operations) and also interest incomes on its holdings of sovereign bonds like US treasury bills etc. RBI’s operations are not guided by a profit motive, but providing adequate liquidity and foreign currency and maintaining orderly conditions in the market.

However, the balance sheet of the RBI is largely a reflection of its activities undertaken in pursuance of its currency issue function as well as monetary and reserve management policy objectives.

Why does the RBI transfer so much funds to the government?

The RBI transfers surplus to the government as the owner of the institution. The RBI, though started as a private entity in 1935, was nationalised in 1949. It has been run by the government ever since then. The surplus transfer to the government has gone up sharply since its accounting year 2013-14. The RBI follows the July-June accounting year.

Every year, after meeting its expenses and keeping aside part of its total profits, the central bank transfer a substantial amount to the central government exchequer.

Note: The Reserve Bank of India recently announced that it will transfer Rs 65,876 crore of its surplus income to the government as dividend for this accounting year, just Rs 20 crore lowers than the record Rs 65,896 crore transferred last year.

How does it help the government?

This payment can help ease the government's finances, help meet its fiscal deficit targets, provide liquidity to the system so that the rate of interest remains low and also make available funds for the government's capital expenditure, economists and bond dealers said.

What are its accounting policies?

The Reserve Bank's accounting principle is unlike that of a corporate entity and has stringent provisioning for market volatility and depreciation of assets, following international best practices adopted by central banks globally.