Note ban dents RBI income

Costs incurred due to the demonetisation exercise dented the Reserve Bank of India’s (RBI) income resulting in the central bank transferring less than half the funds — known as surplus — to the government compared with the previous year.

For the 12 months ended June 30, 2017, the RBI will transfer a surplus of Rs. 30,659 crore to the Government of India, sharply lower than the previous year’s Rs. 65,876 crore. The RBI’s central board, which met on Thursday, approved the amount to be transferred.

This is the lowest-ever surplus transfer by the RBI to the Centre since 2011-12 when it transferred Rs. 16,010 crore. RBI transferred about 80% of its income as surplus in the previous three years.

“There could be a couple of reasons for this decline,” said Soumya Kanti Ghosh, chief economist, State Bank of India. “I think one reason is the cost of seigniorage, – which is higher the more the RBI printed notes.”

There were costs of printing a huge amount of new notes to replace the notes rendered invalid following demonetisation.

New notes

In November, the Centre had announced that Rs. 500 and Rs. 1,000 denomination currency notes were invalid and subsequently issued a new series of Rs. 500 notes and Rs. 2,000 notes.

“It is quite possible that RBI has printed more small denomination notes like Rs. 100,” Mr. Ghosh said.

[“Source-thehindu”]