RBI’s steadiness sheet for the yr 2023-24 (FY24) has expanded by a considerable 11.1% as per its annual report launched just lately. That is considerably decrease than improve of two.4% in FY23 and about 8% in FY21 & FY22. The determine stood at Rs 70.5 lakh crore on the finish of FY24 towards Rs 63.4 lakh crore in FY23 and Rs 61.9 lakh crore in FY22 and Rs 57.1 lakh crore in FY21. So, what led to sharper improve in RBI’s steadiness sheet? Or for that matter, is larger steadiness sheet growth a nasty signal? Right here is an evaluation of RBI’s steadiness sheet and an try and reply this query.
RBI’s steadiness sheet consists of three main objects on the liabilities facet and two on belongings facet. These are liabilities towards notes issued, deposits and threat provisions. The belongings are segregated into belongings of foreign money situation division (ID) and belongings of banking division (BD). Complete belongings of RBI embrace Rs 48 lakh crore of international bonds, Rs 4.4 lakh crore of gold, Rs 13.6 lakh crore of home bonds, and about Rs 3.8 crore of loans & advances. International bonds and gold that are internationally tradeable are counted in direction of international trade reserves and was equal to about $630 billion in greenback phrases on the finish of FY24. Part of international bonds and gold are stored as belongings of situation dept to match its liabilities the place the remaining is accounted below belongings of banking dept.
Situation dept prints foreign money, which is recorded as legal responsibility within the steadiness sheet and is used to buy international foreign money from the banks or approved foreign exchange sellers. Thus, many of the international foreign money that flows into the nation are bought by the central financial institution. That is principally invested again in worldwide bonds however a component is used to buy gold from worldwide market. (Complete foreign money printed wouldn’t essentially be equal to whole foreign exchange bought resulting from a number of different accounting objects). The printed foreign money was additionally given as mortgage to the central authorities, a time period referred to as ‘deficit financing’, discontinued in 1997. For FY24, liabilities of ID dept elevated from Rs 33.5 lakh crore to Rs 34.8 lakh crore, up by lower than 4%, decrease than improve of 8% in FY23. A pointy improve in foreign money issued has the potential to trigger sharp improve in inflation until this quantity is absorbed again by RBI by means of one other route. This legal responsibility is backed by Rs 33.1 lakh crore of international bonds and Rs 1.64 lakh crore of gold below belongings (situation dept).
Whereas the liabilities of situation dept has elevated marginally, deposits, the opposite main merchandise on the liabilities facet, has elevated sharply by 27%; from Rs 13.5 lakh crore to Rs 17.2 lakh crore. this had declined by practically the identical quantity throughout FY23. Deposits are primarily funds parked by banks as a part of CRR (Money Reserves Ratio) or by means of different financial devices akin to SDF (Standing Deposit Facility), reverse repo and so forth. Deposits improve when there’s lack of credit score demand within the economic system or when RBI is adopting tight financial coverage. Between FY19 and FY22, regardless of the liquidity push as a part of accommodative coverage, there wasn’t a lot demand for credit score leaving banks with enormous surplus. This, they, park with RBI below reverse repo mechanism. Because of this, quantity parked below this mechanism had gone up from Rs 1.8 lakh crore in FY19 to Rs 7.3 lakh crore in FY22 however declined to Rs 2.4 lakh crore in FY23. The quantity has once more gone as much as Rs 4.3 lakh crore. Nonetheless, it’s not due to lack of credit score demand however resulting from extra demand! Sensing a heating up within the economic system, RBI has been aggressively attempting to suck cash out of the system to stop build up of bubble within the economic system.
The third merchandise on the liabilities facet is threat provisions which isn’t actually a legal responsibility however surplus obtainable as a part of revaluation reserve and contingency fund (CF). Revaluation reserve is the distinction between market worth and e-book worth of belongings of RBI and contains of – International Forex & Gold revaluation account (CGRA), Funding Revaluation Account-International Securities (IRA-FS) and Funding Revaluation Account–Rupee Securities (IRA-RS). CGRA is used to handle positive aspects/losses arising out of change in value of gold and alter in trade price. An instance would higher illustrate this. Assume RBI had bought $100 bn of foreign exchange when trade price was Rs 60 per greenback. The worth of this funding would stand at about Rs 80*100 bn in FY24, implying an unrealized achieve of Rs 20*100 bn. As per the observe, these positive aspects usually are not taken within the earnings assertion however accounted for within the steadiness sheet. RBI present its belongings as Rs 80*100 bn in its account books (and never Rs 60*100) which will increase its steadiness sheet on belongings facet. Related quantity of improve is proven within the CGRA revaluation account (on the liabilities facet) to steadiness the balance-sheet. In case of a decline in trade price or gold costs, the CGRA reserve is lowered by the identical quantity.
The affect of rise in gold costs can be the identical. So, 100 tons of gold bought at Rs 40,000 per 10 gms would suggest an unrealized achieve of Rs 100*(700-400) crore. For FY24, CGRA rose from Rs 11.2 lakh crore to Rs 11.3 lakh crore, solely marginally, regardless of the rise in gold costs becuae of secure rupee. It might be famous that in FY21, CGRA steadiness had declined, a really uncommon phenomenon, resulting from drop in gold costs and rupee appreciation.
The opposite merchandise whose value impacts RBI’s steadiness sheet is the worth of international or home bonds. Because the yield of a bond declines, its value goes up (and vice versa) resulting in a achieve for RBI. These positive aspects are recorded as IRA-FS & IRA-RS. IRAs strikes each methods whereas CGRA largely will increase yearly. Reserve in IRA account can even fall in need of the decline in bond costs (as occurred in FY22 and FY23) through which case, RBI attracts funds from CF to steadiness this account. The steadiness in IRA-FS rose from Rs 16,000 crore in FY19 to Rs 54,000 crore in FY20 however declined to – Rs 94,000 crore in FY22 and additional to – Rs 1.65 lakh crore in FY23. With marginal softening of yields, reserves rose to – Rs 1.43 lakh crore in FY24. An equal quantity of funds was transferred from CF reserves to make up for this.
The third merchandise, Contingency fund, is an emergency reserve to be maintained at 5.5-6.5% of RBI’s whole steadiness sheet to fulfill any sudden and unexpected contingencies. (The ratio stood at 6% in FY23 and has been elevated to six.5% in FY24). To satisfy the extra requirement in CF, Rs 0.43 lakh crore was transferred from RBI’s revenue & loss account. Any steadiness in revenue & loss assertion, after assembly all of the bills and making all of the changes, is paid to the central authorities as dividend. The quantity transferred this yr is considerably decrease than Rs 1.3 lakh crore transferred in FY23 which explains of considerably excessive dividend of Rs 2.1 lakh crore paid to the federal government towards solely Rs 0.87 lakh crore in FY23. (Level to ponder – what if the excess in P&L just isn’t enough to fulfill the wants of CF? In such an uncommon case, central authorities must switch the required quantity to RBI). Dividends additionally rose due to improve of about Rs 40,000 crore in RBI’s curiosity & different earnings. Complete earnings from international foreign money belongings (FCA), together with positive aspects/ losses throughout market intervention, rose to Rs 1.9 lakh crore towards Rs 1.5 lakh crore in FY23, a results of improve in yields. Charge of earnings rose to 4.21% in FY24 from 3.73% in FY23 and a pair of.1% in each, FY22 and FY21. Earnings from home sources rose marginally, from Rs 83,000 crore to Rs 85,000 crore.
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