The RBI announced a surplus distribution of Rs 268,590 crore to the government for FY25, a 27.4% increase over Rs 210,874 crore in FY24. At first glance, this signals strong income generation and a healthy balance sheet. A closer reading of its accounts suggests a significant portion of surplus continues to be retained within the RBI’s reserves, even when its own capital framework does not require it.
Between FY21 and FY25, the RBI transferred Rs 353,834 crore into internal reserves, largely into its contingency fund (CF). Annual CF allocations have remained elevated, rising from Rs 42,820 crore in FY24 to Rs 44,862 crore in FY25. This accumulation has occurred alongside rising surplus transfers, indicating that distributable income is being split between the sovereign and the RBI’s own buffers.
The core concern is not the strength of the RBI’s balance sheet. RBI earnings also include significant income from forex trading, which is volatile and could impact surpluses. Accounting for this too, it seems the RBI is retaining significant surpluses.
Foreign currency assets (FCA) are the RBI’s largest source of income. In FY25, it earned Rs 258,838 crore on its average FCA. Yet, only Rs 133,360 crore appears in the income statement under foreign sources, within total interest income of Rs 210,688 crore. The remaining Rs 125,477 crore is distributed across exchange gains and other foreign income without a clear reconciliation to total FCA earnings. There was a similar gap of Rs 84,294 crore in FY24.
The yield on FCA rose from 4.21% in FY24 to 5.31% in FY25 due to higher global interest rates. But the fragmented presentation of foreign income makes it difficult to assess how these gains translate into realised surplus. For a balance sheet dominated by foreign assets, the absence of a consolidated earnings view weakens transparency.
The RBI marks its foreign securities (FS) and rupee securities (RS) to market daily. Unrealised gains and losses are recorded in Investment Revaluation Accounts (IRA-FS and IRA-RS).
In FY25, IRA-FS carried a debit balance of Rs 81,367 crore, bettering the Rs 143,221 crore in FY24 as global bond yields softened. IRA-RS moved to a credit balance of Rs 16,843 crore from a debit of Rs 7,090 crore in FY24, reflecting easing domestic yields.
The treatment of IRA-FS is central. Its debit balance is charged to the CF at the end of a financial year and reversed at the start of the next. This reduces contingency reserves based on temporary valuation changes rather than realised losses.
Besides this, the Currency and Gold Revaluation Account (CGRA) captures unrealised gains arising from rupee depreciation and higher gold prices. The CGRA rose from `11,30,793 crore in FY24 to Rs 13,02,965 crore in FY25.
The outcome is a split framework. Market value changes in securities flow through IRA accounts, while currency and gold movements flow through CGRA. Neither is reflected in the income statement unless realised. This complicates the risk assessment.
The RBI’s Economic Capital Framework, revised in May 2025, requires the Contingent Risk Buffer to be maintained at 6.0 ± 1.5% of balance sheet assets (BSA). As of March 31, 2025, BSA stood at Rs 76,25,422 crore; available realised equity (ARE) was Rs 571,907 crore, or 7.5% of BSA; and total economic capital (ARE+RAs) was `18,98,695 crore, or 24.9% of BSA, within the recommendation bounds of 20.8-25.4%.
While these numbers appear aligned with the framework, the methodology inflates the effective capital buffer. Economic capital is measured on the mark-to-market (MTM) value of assets, whereas risk is borne on their historical rupee cost. Risk crystallises only when asset values fall below historical cost after adjusting for revaluation balances.
When revaluation accounts are excluded, BSA reduces to Rs 62,98,629 crore. On this adjusted base, economic capital rises to 30.14%, while ARE rises to 9.08%.
These indicate that realised capital held by the RBI exceeds what is required to cover underlying risk. The gap between actual ARE at 9.08% and the upper bound of 7.5% is 1.58%. Applied to the adjusted BSA of Rs 62,98,629 crore, this yields Rs 99,510 crore that could have been distributed to the government.
India needs a clearer framework for central bank accounting that aligns reported capital with actual risk.First, risk capital should be calculated on BSA net of revaluation accounts. This reflects the historical cost of assets, which is where risk crystallises. Second, the separation between IRA and CGRA should be removed. All MTM adjustments should be consolidated within CGRA. Third, the RBI’s income statement should reflect full FCA earnings, with a clear reconciliation across schedules. This is essential for understanding the central bank’s income generation and surplus. Fourth, the CF should be built only through allocations from realised surplus, and not adjusted for temporary valuation losses such as IRA-FS.
If the IRA-FS debit of Rs 81,367 crore is added back to the CF, contingency reserves would rise to Rs 653,274 crore. On the adjusted BSA, this amounts to 10.37%, which is a strong buffer even under a conservative framework. At the same time, revaluation accounts would reduce to Rs 12,45,427 crore, reflecting a cleaner separation between realised capital and valuation effects.
The RBI’s balance sheet remains robust and well-capitalised; however, its current accounting structure overstates required buffers and understates distributable surplus. The `99,510 crore difference is fiscally material. Retaining it within the RBI reduces transfers to the Centre and forces higher government borrowing, raising the fiscal deficit without strengthening the system’s risk position.
The RBI rightly demands rigorous accounting standards and full transparency from commercial banks. The same discipline must apply to its own balance sheet, where complexity in presentation limits clear assessment of earnings, risk, and surplus.
The RBI’s 2026 annual report must address these issues directly, clarify the treatment of foreign income and valuation accounts, and explain how its revised capital framework aligns with the underlying economics of its balance sheet.
Greater clarity will strengthen both monetary credibility and fiscal efficiency.
TV Mohandas Pai & Nisha Holla are Chairman and Research Fellow, 3one4 Capital, respectively.
Disclaimer: The views expressed are the authors’ own and do not reflect the official policy or position of Financial Express.