The Reserve Bank of India (RBI) has decided to transfer ₹1.76 lakh crore to the Central government from its own reserves. What are these reserves, how will this amount help the government and does this move harm the RBI?

Where do the reserves come from?

To understand what the transfer is, we must first understand where the funds come from. The central bank has three different funds that together comprise its reserves. These are the Currency and Gold Revaluation Account (CGRA), the Contingency Fund (CF) and the Asset Development Fund (ADF). Of these, the CGRA is by far the largest and makes up the significant bulk of the RBI’s reserves. The fund, which in essence is made up of the gains on the revaluation of foreign exchange and gold, stood at ₹6.91 lakh crore as of financial year 2017-18. The CGRA has grown quite significantly since 2010, at a compounded annual growth rate of 25%.

The CF is the second biggest fund, amounting to ₹2.32 lakh crore in 2017-18. It is designed to meet contingencies from exchange rate operations and monetary policy decisions and is funded in large part from the RBI’s profits.