RBI talked about its Working & Operations and Financial Accounts in Annual Report for 2010-11

The Reserve Bank of India on 25 August 2011 released its Annual Report for 2010-11. The Report prepared by the Central Board of the Reserve Bank talked of (i) the assessment of the macroeconomic performance during 2010-11 and the prospects for 2011-12, as well as (ii) the working and operations of the Reserve Bank and its financial accounts.

The highlights of working and operations of the Reserve Bank as mentioned in the report can be discussed under the following heads:

Monetary Policy Operations

•    The RBI adopted certain measures like monetary tightening, introduction of mid-quarter reviews, measures to enhance monetary policy communication, introduction of the new base rate system replacing the BPLR and changes made to the monetary policy operating procedures to improve monetary transmission.
•    The RBI observed that liquidity conditions had changed significantly during quarter 1 (April-June) of 2010-11. The Reserve Bank following the recovery of the economy had moved in a calibrated manner in the direction of normalising its policy instruments post the first quarter of 2010-11.
•    The centre’s cash balance with the Reserve Bank and currency in circulation were key drivers of autonomous liquidity in 2010-11. The Reserve Bank had actively managed liquidity so that neither a surplus diluted monetary transmission, nor a deficit affected fund flows.

Credit Delivery and Financial Inclusion

•    2010-11 was marked by the RBI’s effort to increase the penetration of formal financial services in unbanked areas, while continuing with its policy of ensuring adequate but viable flow of credit to priority sectors of the economy.
•    Financial literacy efforts of the Reserve Bank at large and the outreach programme in particular generated significant interest and exuberant participation from public and banks/ financial institutions.
•    The RBI undertook regulatory actions to further financial inclusion. Changes in KYC norms were introduced, branch authorization policy were relaxed. Widening eligible entities were made to function as business correspondents. The RBI introduced the provision of a minimum percentage of additional branches to be opened in unbanked rural centres.

Development and Regulation of Financial Markets

•    The report declared that the RBI had in 2010-11 initiated policy measures to address certain regulatory gaps, promote transparency and improve liquidity in the money markets with a view to further promote greater efficiency in the financial markets.
•    The Reserve Bank persisted with a calibrated and sequential approach towards launching of new market instruments like Interest Rate Futures on 91-days T-bills, CDS on corporate bonds, etc in the derivative market.
•    As per the report, the linkage between the NDF market and the domestic market was found to be weak because corporates’ domestic forex forward transaction was based on underlying exposure and there was a limit on the aggregate (cash and derivative) positions that banks could take. Empirical analysis in the report also highlighted a weak causality between the NDF and domestic market rates.

Regulation, Supervision and Financial Stability

•    The Indian banking system remained largely sound and resilient to shocks as indicated by various stress tests. The high level of leverage in developed countries, which was one of the causal factors behind the global financial crisis remained low in India.
•    The important policy decisions for SCBs included, inter alia, strengthening countercyclical provisioning norms, measures to avoid excessive leverage in housing loan segment, credit support to Micro Finance Institutions (MFIs) etc.

Public Debt Management

•    The RBI found managing the market borrowing programme for 2011-12 to be a challenge in view of tight liquidity conditions and high level of excess SLR holdings of the banks. The conduct of the market borrowing programme was likely to be influenced by the ability of the Government to rein in the fiscal deficit and its financing by way of market borrowings at the budgeted level coupled with the monetary policy actions.
•    The weighted average yield of dated securities rose to 7.92 per cent in 2010-11 from 7.23 per cent in 2009-10. The weighted average yield of State Government securities issued during 2010-11 stood higher at 8.39 per cent as compared to 8.11 per cent in 2009-10.

Currency Management

•    The Reserve Bank in its pursuance of clean note policy made provision for a steady supply of fresh banknotes in response to the speedier disposal of soiled banknotes. The Reserve Bank continued with its efforts to strengthen the security features of banknotes and increase public awareness so as to address the challenge of counterfeit notes.

Payment and Settlement Systems and Information Technology

•    Driven by the objective of reinforcing RBI as a knowledge hub, the Bank strove towards strategic use of IT and its applications. IT Vision of the Reserve Bank of India 2011-17 was prepared by the Bank.
•    The Reserve Bank persisted in its endeavour to incentivise electronic modes of payment. Enhanced use of prepaid payment instruments and mobile phone based payment services were promoted with adequate security measures in place.

Governance, Human Resource Development and Organisational Management

•    The Reserve Bank took several initiatives in recent years covering improved transparency and governance and knowledge initiatives apart from recruitment, training of staff, schemes for higher studies and incentive schemes for attaining professional qualifications by the staff. As part of corporate social responsibility, several green initiatives were undertaken by the Bank

The Reserve Bank’s Accounts for 2010-11 (July-June)

The balance sheet of the Reserve Bank expanded significantly during 2010-11 reflecting the impact of liquidity management operations undertaken by the Bank. The expansion on the liability side was on account of a large increase in notes in circulation as also an increase in banks’ deposits with the Reserve Bank in line with the deposit growth in the banking system.

Bank’s portfolio of domestic assets in the form of government securities increased due to open market purchases, repo purchases and disinvestment of Government of India’s surplus balance parked with the Reserve Bank. The increase in foreign currency assets mainly reflected the valuation effect on the portfolio.

The income from foreign assets declined for the second successive year, reflecting the low interest rates in international markets. The decline in income from foreign assets was however offset by an increase in earnings from domestic assets. The increase in the earnings from domestic assets resulted from the effect of earnings on LAF operations, higher use of ways and means advances (WMA) by the Central Government and higher coupon receipt on an increased portfolio of government securities.

The transfer of surplus profit to the Central Government amounted to Rs 15009 crore in 2010-11.

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