The Reserve Bank of India’s surplus transfers to the government increased to Rs 2.97 lakh crore in 2025-26 from Rs 2.69 lakh crore in 2024-25. Volatility in reserves has not prevented higher transfers to the government because realised income has grown faster than risk provisioning needs, explains DK Srivastava
l How does RBI’s economic capital framework determine surplus transfers?
THE RESERVE BANK of India’s (RBI) economic capital framework (ECF), prior to 2015, was ad-hoc and followed a conservative approach whereby the RBI retained a relatively high share of realised profits. A new framework, determined in 2014-15 and implemented in 2015-16, provided a more formalised and systematic methodology for determining the required
provisions for risks.
The new framework provided for a framework for assessing forward-looking risks to the RBI’s balance sheet with a view to ensuring that the RBI remained sufficiently capitalised to maintain monetary independence without needing government recapitalisation. The Bimal Jalan Committee recommendations were adopted in 2019 with a provision for review every five years.
ALSO READPetrol, diesel may need another Rs 5/litre hike as OMC losses persist
l Why have RBI’s surplus transfers risen sharply in recent years?
THE RESERVE BANK of India Act, 1934 under Section 47 provides that the central government is entitled to a profit linked to the surplus generated by the RBI’s operations after providing for bad and doubtful debts, depreciation in assets, etc. In its May 2025 review, the RBI’s Central Board of Directors hiked the upper bound of the contingent risk buffer (CRB) to 7.5%.
The RBI’s realised earnings increased sharply due to higher interest income on domestic and foreign assets, gains from active forex operations, and a larger balance sheet. In 2025-26, the RBI’s net income increased by Rs 89,376 crore to Rs 4.28 lakh crore. The surplus transfers to the government increased to Rs 2.97 lakh crore in 2025-26 from Rs 2.69 lakh crore in 2024-25, that is by about Rs 17,998 crore.
Volatility in reserves has not prevented higher transfers because realised income has grown faster than risk provisioning needs.
l What is driving higher earnings?
THERE ARE THREE important factors that account for RBI’s higher earnings. First, RBI has expanded the stock of domestic investments and invested in higher-yielding foreign assets. Second, large-scale dollar sales to minimise rupee volatility also generated higher realised trading income. Third, gold has been sharply revalued resulting in a boost in the balance sheet through revaluation gains. In 2025-26, the RBI’s balance sheet expansion was driven by growth in domestic investments at 44.9%, value of gold reserves at 63.8% and foreign investments at 7.9% considering operations of banking and issue departments together.
l How does the RBI balance surplus payouts with the contingency buffer?
THE CRB IS the RBI’s key provision against non-market risks such as monetary, financial stability, credit and operational shocks. Under the revised 2025 framework, the Board has flexibility to maintain the CRB within 4.5-7.5% of the RBI’s balance sheet. In 2025-26, based on its macro-financial assessment, the RBI’s Board chose to keep the CRB at 6.5% vis-à-vis 7.5% in 2024-25 while raising the provisioning to Rs 1.09 lakh crore in 2025-26 from Rs 44,862 crore in 2024-25.
ALSO READ4% inflation target remains sacrosanct despite supply-side pressures: RBI Governor
l What Bimal Jalan Committee said
THE BIMAL JALAN Committee formed in 2018 modified the existing ECF. Its key recommendations included a clear distinction between realised earnings and unrealised gains due to revaluation from gold and foreign currency fluctuations. Any revaluation-based gains cannot be used to cover shortfalls in risk provisions and cannot be transferred as government dividends.
The Committee defined CRB based on realised gains to be kept in the range of 5.5-6.5% of the RBI’s balance sheet, with the provision that the lower bound of 5.5% must be first provided for before considering the remain surplus for transfer to the government. The Committee also specified that the overall economic capital was to be maintained between 20-24.5% of the RBI’s balance sheet.
l Do the evolving external risks call for a review of ECF?
THE RBI’S ANNUAL report indicates that net capital flows during April-December 2025 fell short of financing the current account deficit, contributing to a $30.8 billion reserve draw-down on a balance-of-payments basis, while portfolio flows turned volatile. These developments can be accommodated within the existing framework although they do call for a cautious calibration of risk buffers. Another review of ECF would be due in 2030.
The writer is chief policy advisor, EY India.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.
TOPICSRBIThis article was first uploaded on June five, twenty twenty-six, at fifty-four minutes past ten in the night. © The Indian Express (P) Ltd