Contingency Fund of RBI
The Reserve Bank of India (RBI), the government’s banker, has retained a amount of Rs 73,615 crore within the RBI by transferring it to the Contingency Fund (CF) of the central bank, thus leading to a sharp fall in the transfer of surplus to the government in the current year. As a result, the CF has swelled to a new high of Rs 264,034 crore, according to the Annual Report of the RBI.
The central bank’s main risk provision accounts – Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS) — together now amount to Rs 13.88 lakh crore.
Contingency Fund (CF)
• It is a fund set apart for meeting the unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the Bank.
• The purpose of the fund is to improve financial security by creating a safety net of cash or other highly liquid assets that can be used to meet emergency expenses.
• This amount is retained with the Reserve Bank of India.
Currency and Gold Revaluation Account (CGRA)
CCRA is maintained by the Reserve Bank to take care of currency risk, interest rate risk and movement in gold prices.
Unrealised gains or losses on valuation of foreign currency assets (FCA) and gold are not taken to the income account but instead accounted for in the CGRA.
Net balance in CGRA varies with the size of the asset base, its valuation and movement in the exchange rate and price of gold.
CGRA provides a buffer against exchange rate/ gold price fluctuations.
It can come under pressure if there is an appreciation of the rupee vis-à-vis major currencies or a fall in the price of gold.
When CGRA is not sufficient to fully meet exchange losses, it is replenished from the CF.
During 2019-20, the balance in CGRA increased from Rs 664,480 crore as on June 30, 2019 to Rs 977,141 crore as on June 30, 2020 mainly due to depreciation of rupee and the rise in the international price of gold.
Investment Revaluation Account Foreign Securities (IRA-FS)
Investment Revaluation Account Foreign Securities (IRA-FS) records the unrealized gains or losses on revaluation in foreign dated securities. The balance in IRA-FS increased from Rs 15,735 crore as on June 30, 2019 to Rs 53,834 crore as on June 30, 2020.
Investment Revaluation Account-Rupee Securities (IRA-RS)
The unrealized gains or losses on revaluation are accounted for in Investment Revaluation Account-Rupee Securities (IRA-RS). The balance in IRA-RS increased from Rs 49,476 crore as on June 30, 2019 to Rs 93,415 crore as on June 30, 2020 due to increase in portfolio of rupee securities and decline in yields on government of India securities held by the Reserve Bank during the year.