The 106% jump in surplus profit transferred by RBI to the government for 2012-13 is the biggest y-o-y increase in seven years. The RBI on Thursday transferred nearly Rs 33,000 crore of surplus to government. The other year there was a spike in the transfer was 2008-09, the year when Lehman collapsed and triggered the global financial crisis. In 2008-09, RBI transferred R25,009, which was 66% higher than the previous year.
An analysis of RBI data suggests that the central bank’s income tends to rise steeply in years of liquidity stress. The central bank's main income is from the interest it earns through various lending operations it does with the banking system and the government.
For instance, banks pay RBI interest at the repo rate (currently 7.25%) on the money they borrow daily from its repo tender. The central bank also earns interest through the government securities it holds. Investment of its foreign exchange reserves into various assets globally also earns RBI income. So, in a year like 2012-13, when the RBI maintained tight liquidity conditions and bank borrowings from the repo window were on average above R1 lakh crore, the interest RBI earns from the banks tends to shoot up.
In addition, data from the central bank also shows that the RBI bought nearly R2 lakh crore of bonds between July 2011 and June 2012 — on which it will earn the coupon payment. These two factors may have been largely responsible for the spike in surplus profit, which, in turn, gets transferred to the government.
The trend is borne out by the historical trend that shows that after a spike in the crisis year of 2008-09, the central bank's income reduced by over 10% in 2009-10 and 2010-11. At that time, the economic growth was healthy around 7-8% and liquidity conditions were comfortable.
In 2011-12, the central bank's income rose 10%. At this time, RBI had began buying government bonds from banks through open-market operations and banks were net borrowers from its daily repo tender. In 2012-13, that situation deteriorated further, adding to the RBI’s interest income.