India cenbank's net income surges on the back of lower provisions in FY24

By Swati Bhat and Siddhi Nayak

MUMBAI (Reuters) -The Indian central bank's net income surged 141% for the financial year ended March 2024, largely on the back of a sharp contraction in expenditures, particularly lower provisions, its annual report showed on Thursday.

The Reserve Bank of India's net income rose to 2.11 trillion rupees ($25.30 billion) from 874.20 billion rupees in the previous year, allowing it to transfer a record high surplus to the government.

The size of the RBI's balance sheet increased by 11.08% to 70.48 trillion rupees.

The Reserve Bank of India saw a gain of 836.16 billion rupees from foreign exchange transactions during the year, while interest income from foreign securities rose to 653.28 billion rupees.

"Higher interest earned on foreign securities holding was in part supported by higher rates by central banks. The U.S. Federal Reserve's rates stood at 5.23% on average in FY24, compared with 2.78% in FY23," said Swati Arora, economist at HDFC Bank.

The RBI transferred 428.20 billion rupees towards contingency funds, raising the buffer to 6.5% from 6% last year.

In the financial year 2019, the RBI adopted a new Economic Capital Framework that requires it to maintain a contingency risk buffer of 5.5%-6.5% of its balance sheet.

The new framework also allows the central bank to benchmark forex sales to the historical average cost of acquiring those reserves, allowing it to realise gains on such transactions during the year.

Overall income from foreign sources increased by 23.23% to 1.87 trillion rupees from 1.52 trillion last year, the central bank said, while its total expenditure decreased by 56.30% to 646.94 billion rupees from 1.48 trillion rupees last year.

"The lower need for provision was because the risk buffers were supported by revaluation gains on foreign securities due to the rupee's depreciation," said Gaura Sen Gupta, chief economist at IDFC First Bank.

"The INR's appreciation against USD (and other currencies) results in revaluation loss as the RBI's balance sheet is denominated in INR. Increase in gold prices also supported revaluation gains," she added.

Further, the RBI said the real GDP growth is robust on the back of solid investment demand, while inflation easing towards the 4% target would spur consumption demand, especially in the rural areas.

International commodity price movements and erratic weather developments posed downside risks to the growth and upside risks to the inflation outlook, RBI said.

The general government deficit is also expected to decline further in 2024/25, it added.

($1 = 83.4050 Indian rupees)

(Reporting by Swati Bhat; Editing by Sohini Goswami)