RBI accounting deprives govt of full surplus

In FY26, it reported interest income of Rs 2,35,580 crore, including Rs 1,35,215 crore from foreign sources. Foreign-source “other income” was Rs 1,92,440 crore, comprising exchange gains of Rs 1,68,906 crore, amortisation of premium or discount of Rs 16,354 crore, profit on foreign-security sales of Rs 3,503 crore, and miscellaneous income of Rs 3,676 crore. The RBI reported a 6.4% yield on average foreign currency assets (FCA), up from 5.3% in FY25, reflecting comprehensive returns including trading gains.

Foreign securities (FS) and rupee securities (RS) are marked to market daily, with unrealised gains and losses recorded in investment revaluation accounts (IRA-FS and IRA-RS). At the end of FY26, IRA-FS had a debit balance of Rs 90,833 crore, against Rs 81,367 crore in FY25. IRA-RS moved from a Rs 16,843 crore credit to a Rs 30,604 crore debit as domestic yields hardened. The Foreign Exchange Forward Contracts Valuation Account (FCVA) similarly moved from a Rs 6,985 crore credit to a Rs 43,403 crore debit, matched by a contra provision under “other liabilities”. These three debit balances are charged to the CF at the year-end and reversed on the next financial year’s first working day.

Meanwhile, unrealised rupee gains and losses on FCA and gold arising from exchange-rate and gold-price movements bypass the income statement and flow into the Currency and Gold Revaluation Account (CGRA). Rupee depreciation and higher gold prices lifted the CGRA from Rs 13,02,965 crore in FY25 to Rs 21,68,530 crore in FY26. The CGRA covers foreign-currency assets and gold, but no equivalent account exists for rupee securities.

The resulting structure is asymmetric. Changes in the market value of FS and RS pass through separate IRA accounts, while the increase in the rupee value of FCA and gold is accumulated in the CGRA. None enters income unless realised. Yet debit balances in IRA-FS, IRA-RS, and FCVA reduce the CF at each year-end, even though the foreign-asset revaluation gains held in the CGRA remain outside realised equity. This separation obscures both the underlying risk position and the surplus available for distribution.

The Bimal Jalan Committee recommended maintaining the CF at 5.5-6.5% of balance-sheet assets (BSA). Under the revised Economic Capital Framework approved on May 15, 2025, the Contingent Risk Buffer, which subsumes the CF, may range from 4.5% to 7.5% of BSA. For FY26, the RBI’s Central Board chose 6.5%, below the 7.5% applied in FY25. Available realised equity (ARE), comprising capital, the reserve fund, CF, and asset development fund, stood at Rs 5,97,813 crore, or 6.5% of BSA (Rs 91,97,121 crore). Total economic capital, including revaluation accounts, was Rs 27,66,343 crore, or 30.08% of BSA, above the committee’s recommended 20.8-25.4% range.

However, this capital is measured against assets at their rupee mark-to-market value, while risk crystallises against their historic rupee cost only after revaluation balances are exhausted. Deducting total revaluation accounts of Rs 21,68,530 crore produces BSA at a cost of Rs 70,28,591 crore. Against this base, economic capital rises to 39.36%, while ARE equals 8.505%.

For FY25, the adjustment raises economic capital to 30.14% of BSA net of revaluation accounts. The FY26 increase shows how unrealised currency and gold gains can distort reported capital ratios.

It implies excess realised equity even against the revised framework’s 7.5% ceiling. Using unrounded figures, the excess is roughly 1.005% of Rs 70,28,591 crore, or Rs 70,669 crore, which could have been distributed to the government. Against the 6.5% buffer actually selected for FY26, the additional retention rises to roughly Rs 1,40,954 crore.

The RBI should calculate its contingency buffer and economic capital against BSA net of revaluation accounts. It should also consolidate cross-border revaluations: IRA-FS and FCVA balances should be adjusted against the CGRA, which captures changes in the rupee value of overseas assets, rather than charged to the CF. The CF could then be maintained at a transparent, conservatively higher ratio, such as 10% of net BSA, funded solely through allocations from realised surplus.

Adding back the FY26 IRA-FS debit of Rs 90,833 crore and FCVA debit of Rs 43,403 crore would take the CF to Rs 7,02,569 crore, exactly 10% of net BSA. The Rs 30,604 crore IRA-RS debit should not be added back because rupee securities lack a corresponding revaluation reserve. Revaluation accounts would consequently decline to Rs 20,34,294 crore.

Four reforms follow. First, set off IRA-FS and FCVA against the CGRA at year-end, allowing rupee appreciation or depreciation to change the CGRA transparently. Second, allocate realised surplus to the CF when required, without IRA adjustments. Third, calculate both the CF and economic capital on BSA net of revaluation accounts, using a higher ratio if prudence demands. Fourth, exclude zero- or negligible-default-risk assets from the contingency base. Loans and advances to banks and governments, reverse repos, and accrued income total `5,60,599 crore; applying a 6.5% reserve to them retains an additional Rs 36,439 crore.

The RBI is wholly owned by the government of India, which can recapitalise it if necessary. Its balance-sheet risks ultimately belong to the sovereign, and its economic capital is, in substance, government equity. Excess capital retained by the RBI reduces government revenue, forcing additional borrowing and a higher fiscal deficit to finance expenditure. It must therefore simplify its accounting, improve disclosure, and apply the high transparency standards it requires of regulated entities. A clearer framework would preserve robust central-bank risk capital while ensuring that the government receives its legitimate share of realised surplus.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.