Reserve Bank of India generated surplus on weak rupee
Reserve Bank of India has cashed huge surplus on weak rupee. To stay steady in foreign exchange market, RBI sold a part of Forex reserves.
RBI has witnessed an increase in its growth by 45% for year 2007-2008 from foreign exchange market. The record growth is assisted with a record Rs 15,011 crore surpluses transferred to the government, whose accounting year finished in the June of 2008.
The total income of central bank rose 41 percent more, as it saw the growth of income from initial amount of 41,039.73 crore (the profit earned by the sale of SBI shares is excluded) to Rs 57,750 crore in the year 2007-2008. Central bank’s major source of income is foreign exchange operations, capital gains/losses on foreign currency securities, discounts gains/losses in Forex trading, and comprising interest.
With 90 percent of Reserve Bank of India’s income being generated from foreign exchange, the financial year of 2007 saw an increase in foreign sources as it went soaring from Rs 35,152.99 crore to Rs 51,883.27 crore.
Another area of profit used by central bank was the sale of dollar since the beginning of April, when dollar reached higher level of price from the level it was brought, which benefited the bank a lot. Reserve management strategy of the bank for the year included a prominent feature where it pulled out of deposits with reign commercial banks those hit by sub-prime emergency.
Since central bank has been lending to banks suffering tight cash situations on regular basis, it is expected of it to profit from hike in repo rate in the existing year. The cash situation of many banks has been stiffening up due to a hike in reserve requirements (CRR) by the central bank, which is a part or amount of deposits with the Reserve Bank of India. The funds or amount of money parked with central bank as CRR does not provides any interest rates to banks.