Annual Report


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Date : Aug 29, 2005
X.The Reserve Bank's Accounts for 2004-05

X THE RESERVE BANK'S ACCOUNTS FOR 2004-05

10.1 The key financial results of the Reserve Bank’s operations during the year are presented in this Section.

INCOME AND EXPENDITURE

10.2 The gross income, expenditure, appropriations and net disposable income of the Reserve Bank have been evolving over the last five years (Table 10.1).

converted into marketable securities. The transfer on account of interest differential is intended to compensate the Government for the difference in interest expenditure which the Government had to bear consequent on the conversion.

INCOME

10.4 The gross income of the Reserve Bank for the year 2004-05 was Rs.19,028.28 crore, which

Table 10.1: Trends in Gross Income, Expenditure and Net Disposable Income

     
         

(Rupees crore)

             
 

Item

2004-05

2003-04

2002-03

2001-02

2000-01

             
 

1

2

3

4

5

6

             

Total Income (Gross)

19,028.28

14,323.70

23,185.64

24,690.34

21,848.87

Less transfer to:

         
 

(i) Contingency Reserve

6,125.92

969.47

6,733.92

6,996.04

6,202.57

 

(ii) Asset Development Reserve

687.09

188.09

890.31

827.91

704.78

Total (i + ii)

6,813.01

1,157.56

7,624.23

7,823.95

6,907.35

Total Income (Net)

12,215.27

13,166.14

15,561.41

16,866.39

14,941.52

Total Expenditure

6,811.27

7,762.14

6,723.41

6,542.39

5,587.52

Net Disposable Income

5,404.00

5,404.00

8,838.00

10,324.00

9,354.00

 

Less : Transfer to Funds *

4.00

4.00

4.00

4.00

4.00

             

Surplus transfer to the Government

5,400.00

5,400.00

8,834.00

10,320.00

9,350.00

             

* :An amount of Rupees one crore each transferred to the National Industrial Credit (Long Term
Operations) Fund,National Rural Credit (Long Term Operations) Fund, National Rural Credit
(Stabilisation) Fund and National Housing Credit (Long Term Operations) Fund during each of the five years.

Surplus Transferable to Government of India

10.3 The surplus transferable to the Central Government for the year 2004-05 amounted to Rs.5,400.00 crore, inclusive of Rs.2,494.00 crore towards interest differential on special securities was higher by Rs.4,704.58 crore (32.8 per cent) than the previous year’s total income of Rs.14,323.70 crore. There was an increase in income from foreign sources while income from domestic sources declined during the year (Table 10.2 and Chart X.1).

Table 10.2: Gross Income

             
           

(Rupees crore)

               
 

Item

 

2004-05

2003-04

2002-03

2001-02

2000-01

               
 

1

 

2

3

4

5

6

               

A.

Foreign Sources

           
 

Interest, Discount,

Exchange

16,979.47

9,103.50

9,826.65

9,986.46

10,086.08

B.

Domestic Sources

           
 

Interest

 

1,607.34

4,872.41

13,064.77

14,492.14

11,314.12

 

Other Earnings

 

441.47

347.79

294.22

211.74

448.67

Total: Domestic

 

2,048.81

5,220.20

13,358.99

14,703.88

11,762.79

C.

Total Income (Gross) (A+B)

19,028.28

14,323.70

23,185.64

24,690.34

21,848.87


Table 10.3: Contingency and Asset Development Reserves and Surplus Transfer to the Government

 
       

(Rupees crore)

Item

2004-05

2003-04

2002-03

2001-02

2000-01

1

2

3

4

5

6

Total Income (Gross)

19,028.28

14,323.70

23,185.64

24,690.34

21,848.87

Transfer to Contingency Reserve

6,125.92

969.47

6,733.92

6,996.04

6,202.57

 

(32.2)

(6.8)

(29.0)

(28.3)

(28.4)

Asset Development Reserve

687.09

188.09

890.31

827.91

704.78

 

(3.6)

(1.3)

(3.8)

(3.4)

(3.2)

Surplus transfer to the Government

5,400.00

5,400.00

8,834.00

10,320.00

9,350.00

 

(28.4)

(37.7)

(38.1)

(41.8)

(42.8)

Note: Figures in parentheses indicate proportion to total income.

 

10.5 The share of transfer to Contingency Reserve, Asset Development Reserve and surplus transferred to Government as a percentage to total income is given in Table 10.3.

Earnings from Foreign Sources

10.6 The Reserve Bank’s earnings from the deployment of foreign currency assets and gold increased by Rs.7,875.97 crore (86.5 per cent) from Rs.9,103.50 crore in 2003-04 to Rs.16,979.47 crore in 2004-05 (Table 10.4). This was mainly on account of increase in the level of foreign currency assets, hardening of short term interest rates in the USA and lower mark-to-market depreciation on securities. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 3.2 per cent in 2004-05 as against 2.8 per cent in 2003-04. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, increased from 2.1 per cent in 2003-04 to 3.1 per cent in 2004-05.

Table 10.4: Earnings from Foreign Sources

     

(Rupees crore)

Item

As on

 

Variation

 

June 30, 2005

June 30, 2004

Absolute

Per cent

1

2

3

4

5

Foreign Currency Assets (FCA)

5,75,863.66

5,24,865.01

50,998.65

9.7

Gold

19,375.10

18,655.48

719.62

3.9

Special Drawing Rights (SDR)

18.35

8.42

9.93

117.9

Reserve Position in the IMF **

6,791.43

5,980.47

810.96

13.6

Total Foreign Exchange Reserves (FER)

6,02,048.54

5,49,509.38

52,539.16

9.6

Average FCA

5,51,659.54

4,38,958.40

1,12,701.14

25.7

Earnings (Interest, Discount, Exchange gain/loss,

       

Capital gain / loss on Securities)

17,889.74

12,415.99

5,473.75

44.1

Depreciation on Securities

(-) 910.27

(-) 3,312.49

2,402.22

(-)72.5

Earnings Net of Depreciation

16,979.47

9,103.50

7,875.97

86.5

Memo Items:

       

Unrealised appreciation on Securities

900.14

330.31

569.83

172.5

Earnings as percentage of Average FCA

3.2

2.8

   

Earnings (net of depreciation) as percentage of Average FCA

3.1

2.1

   

** : Reserve Position in the International Monetary Fund (IMF), which was shown as a memo item from May 23, 2003 to
March 26, 2004 has been included in the reserves from the week ended April 2, 2004.


Table 10.5: Earnings from Domestic Sources

         
       

(Rupees crore)

           
 

Item

As on

Variation

           
   

June 30, 2005

June 30, 2004

Absolute

Percentage

           
 

1

2

3

4

5

           

Domestic Assets

106,952.94

84,872.74

22,080.20

26

Weekly Average of Domestic Assets

99,977.76

88,288.77

11,688.99

13.2

Earnings

2,048.81

5,220.20

(-)3,171.39

(-) 60.8

   

(8,143.92)

(2,744.69)

   
 

of which:

       
 

Interest

1,607.34

4,872.41

(-)3,265.07

(-) 67.0

 

(i) Profit on Sale of Securities

4,220.52

2,322.62

1,897.90

81.7

 

(ii) Interest on Securities

(-) 3,272.08

1,938.28

(-)5,210.36

(-)268.8

 

(iii) Interest on Loans and Advances

367.35

376.64

(-) 9.29

(-)2.5

 

(iv) Other Interest Receipts

291.55

234.87

56.68

24.1

Other earnings

441.47

347.79

93.68

26.9

(i)

Discount

0.01

0.01

(ii)

Exchange

0.04

0.07

(-)0.03

(-)42.9

(iii)

Commission

381.36

335.05

46.31

13.8

(iv)

Rent realised and others

60.06

12.66

47.40

374.4

Memo Items:

       

Earnings in percentage terms

2.0

5.9

   

(on average domestic assets)

       

Earnings in percentage terms

       

(excluding profit on sale of Securities)

(-) 2.2

3.3

   
           

Note : Figures in parentheses are depreciation on securities.

Income from Domestic Sources

10.7 Domestic income decreased by Rs.3,171.39 crore (60.8 per cent) from Rs.5,220.20 crore in 2003-04 to Rs.2,048.81 crore in 2004-05. The decline in income was mainly on account of (a) booking of substantially higher depreciation in the value of rupee securities as the yields hardened during the year, (b) lower availment of WMA by Central Government and State Governments, (c) investment of Government of India surplus balances in rupee securities from Bank’s por tfolio and (d) earmarking of cer tain securities to cover the liabilities in Provident Fund, Superannuation Fund and Encashment of Ordinary Leave Fund. The net interest income on rupee securities was negative on account of higher depreciation during the year (Table 10.5).

10.8 Profits booked on sale of securities amounted to Rs.4,220.52 crore in 2004-05, representing an increase of Rs.1,897.90 crore over the previous year. The interest income on ways and means advances declined by Rs.196.42 crore from Rs.370.52 crore in 2003-04 to Rs.174.10 crore in 2004-05, reflecting decreased recourse to this facility by the Central Government and State Governments during 2004-05.

EXPENDITURE

10.9 Total expenditure of the Reser ve Bank declined by Rs.950.87 crore (12.3 per cent) from Rs.7,762.14 crore in 2003-04 to Rs.6,811.27 crore in 2004-05 (Table 10.6 and Chart X.2).

Interest Payment

10.10 Interest payment decreased by Rs.422.20 crore (23.3 per cent) from Rs.1,808.48 crore in 2003-04 to Rs.1,386.28 crore in 2004-05. During the year, the Bank earmarked certain Government securities from its Investment Account in order to cover the liabilities in Provident Fund, Superannuation Fund and Encashment of Ordinary Leave Fund. Consequently, interest payments on these funds (Rs.403.8 crore) have been made from the interest earned on these earmarked securities and hence do not form part of interest payments.

Establishment Expenditure

10.11 Establishment expenditure declined by Rs.579.82 crore (26 per cent) from Rs.2,232.99 crore in 2003-04 to Rs.1,653.17 crore in 2004-05 as a result

Table 10.6: Expenditure

           
         

(Rupees crore)

Item

2004-05

2003-04

2002-03

2001-02

2000-01

             

1

 

2

3

4

5

6

I.

Interest Payment

1,386.28

1,808.48

1,990.09

2,334.99

1,994.80

 

of which:

         
 

Scheduled Banks

1,276.83

1,323.23

1,483.02

1,838.57

1,660.83

II.

Establishment

1,653.17

2,232.99

1,488.86

1,304.36

870.85

III

Non-Establishment

3,771.82

3,720.67

3,244.46

2,903.04

2,721.87

 

of which:

         
 

a) Agency charges

1,824.17

1,539.12

1,352.41

1,207.84

1,160.70

 

b) Security printing

1,443.57

1,709.56

1,433.09

1,304.49

1,122.78

Total [I+II+III]

6,811.27

7,762.14

6,723.41

6,542.39

5,587.52

of lower provisioning required in respect of gratuity and superannuation funds. As per the actuarial valuation, the appropriation to the Gratuity and Superannuation Fund was to the extent of Rs.228.06 crore as against Rs.1,010.00 crore during the previous year. The establishment expenditure during 2004-05 comprised of salary (17.3 per cent), allowances (15.5 per cent), funds (46.8 per cent) and miscellaneous expenditures (20.4 per cent).

Non-Establishment Expenditure

10.12 Expenditure on security printing comprising, inter alia, cost of printing currency notes and cheque forms decreased by Rs.265.99 crore (15.6 per cent) from Rs.1,709.56 crore in 2003-04 to Rs.1,443.57 crore in 2004-05 mainly due to reduction in the cost of printing banknotes and lower supply of notes by

172.3 crore pieces. The expenditure incurred for security printing includes a sum of Rs.209.24 crore paid for banknotes supplied during the previous years.

BALANCE SHEET

LIABILITIES

National Industrial Credit (Long Term Operations) Fund

10.13 There were no operations in the National Industrial Credit (Long Term Operations) Fund (established under Section 46 C of the Reserve Bank of India Act, 1934) during 2004-05 except the credit of Rs.1.00 crore to the Fund out of the Reserve Bank’s income.

National Housing Credit (Long Term Operations) Fund

10.14 The National Housing Credit (Long Term Operations) Fund was established by the Reserve Bank in terms of Section 46 D(1) of the Reserve Bank of India Act, 1934 in Januar y 1989. A token contribution of Rs.1.00 crore was made to the Fund out of the Reserve Bank’s income during 2004-05.

Deposits - Banks

10.15 ‘Deposits - Banks’ represent balances maintained by banks in current account with the Reserve Bank mainly for maintaining Cash Reserve Ratio (CRR) and as working funds for clearing adjustments.

Deposits - Others

10.16 ‘Deposits - Others’ include deposits from financial institutions, employees’ provident fund deposits, surplus earmarked pending transfer to the Government and sundry deposits.

Other Liabilities

10.17 ‘Other Liabilities’ include the internal reserves and provisions of the Reserve Bank and net credit balance in the RBI General Account. These liabilities have declined by Rs.29,573.22 crore (22.8 per cent ) from Rs.1,29,929.49 crore as on June 30, 2004 to Rs.1,00,356.27 crore as on June 30, 2005 mainly on account of decrease in the levels of Currency and Gold Revaluation Account (CGRA).

10.18 The reserves, viz. Contingency Reserve, Asset Development Reserve, Currency and Gold Revaluation Account and Exchange Equalisation Account reflected in ‘Other Liabilities’ are in addition to the ‘Reserve Fund’ of Rs.6,500.00 crore held by the Reserve Bank as a distinct balance sheet head.

Currency and Gold Revaluation Account (CGRA) and Exchange Equalisation Account (EEA)

10.19 Gains/losses on valuation of foreign currency assets and gold due to movements in the exchange rates and/or prices of gold are not taken to Profit and Loss Account but instead booked under a balance sheet head named as CGRA. The balance represents accumulated net gain on valuation of foreign currency assets and gold. During 2004-05, there was a depletion of Rs.35,376.83 crore in CGRA, thus decreasing its balance from Rs.62,283.04 crore as on June 30, 2004 to Rs.26,906.21 crore as on June 30, 2005. The balance in CGRA at the end of June 2005 was equivalent to 4.5 per cent of foreign currency assets and gold holdings of the Reserve Bank as compared with 11.5 per cent at the end of June 2004. The decline was mainly on account of increase in the level of foreign currency assets during 2004-05, on the one hand and appreciation of the rupee against the US dollar and US dollar against other currencies, on the other. The balance in EEA represents provision made for exchange losses

Table 10.7: Balances in Currency and Gold Revaluation Account and Exchange Equalisation Account

   

(Rupees crore)

     

As on

Currency and

Exchange

June 30

Gold Revaluation

Equalisation

 

Account

Account

     

1

2

3

2001

29,124.44

49.46

2002

51,010.77

51.50

2003

51,276.41

567.25

2004

62,283.04

5.65

2005

26,906.21

0.50

arising out of forward commitments. The balance in the EEA as on June 30, 2005 stood at Rs.0.50 crore. The balances in CGRA and EEA are grouped under ‘Other Liabilities’ in the balance sheet (Table 10.7).

Contingency Reserve and Asset Development Reserve

10.20 The Reserve Bank maintains a Contingency Reserve (CR) to enable it to absorb unexpected and unforeseen contingencies. The balance in CR has increased from Rs.56,218.76 crore as on June 30, 2004 to Rs.62,344.68 crore as on June 30, 2005. A transfer of Rs.6,125.92 crore was made to CR during 2004-05 from the Reserve Bank’s income. The balance in CR is sufficient to meet contingent liabilities.

10.21 In order to meet the inter nal capital expenditure and make investments in its subsidiaries and associate institutions, the Reserve Bank had created a separate Asset Development Reserve (ADR) in 1997-98, with the aim of reaching one per cent of the Reserve Bank’s total assets within the overall indicative target of 12 per cent set for CR. In the year 2004-05, an amount of Rs.687.09 crore was transferred from income to ADR raising its level from Rs.5,778.94 crore as on June 30, 2004 to Rs.6,466.03 crore as on June 30, 2005. CR and ADR together constituted 10.1 per cent of total assets of the Bank as on June 30, 2005 (Table 10.8).

Table 10.8 : Balances in Contingency Reserve and Asset Development Reserve

 
     
     

(Rupees crore)

         

As on

Balance in

Balance in

Total

Percentage

June 30

CR

ADR

 

to total

       

assets

         

1

2

3

4

5

         

2001

36,514.13

3,872.63

40,386.76

9.9

2002

48,434.17

4,700.54

53,134.71

11.7

2003

55,249.29

5,590.85

60,840.14

11.7

2004

56,218.76

5,778.94

61,997.70

10.2

2005

62,344.68

6,466.03

68,810.71

10.1

ASSETS

Foreign Currency Assets

10.22 The foreign currency assets comprise foreign securities held in Issue Department, balances held abroad and investments in foreign securities held in Banking Depar tment. Such assets rose from Rs.5,24,865.01 crore as on June 30, 2004 to Rs.5,75,863.66 crore as on June 30, 2005. The

Table 10.9: Outstanding Foreign Currency and Domestic Assets

 

(Rupees crore)

     

As on

Foreign

Domestic

June 30

Currency

Assets

 

Assets

 
     

1

2

3

2001

1,91,226.06

2,16,246.37

2002

2,67,333.18

1,86,226.62

2003

3,65,000.98

1,54,812.91

2004

5,24,865.01

84,872.74

2005

5,75,863.66

1,06,952.94

increase in the level of foreign currency assets was mainly on account of net purchases of US dollars from the market and interest and discount received, net of revaluation losses (Table 10.9 and Chart X.3).

Investment in Government of India Rupee Securities

10.23 Investment in Government of India rupee securities, which was Rs.40,179.74 crore as on June 30, 2004 increased by Rs.28,296.74 crore (70.4 per cent) to Rs.68,476.48 crore as on June 30, 2005.

Table 10.10: Investments in Shares of Subsidiaries/Associate Institutions

 
     

(Rupees crore)

 

Institution

Book value of shares held as on

       
   

June

June

   

30, 2005

30, 2004

 

1

2

3

       

1.

Deposit Insurance and Credit

   
 

Guarantee Corporation

50.00

50.00

2.

National Bank for Agriculture

   
 

and Rural Development

1,450.00

1,450.00

3.

State Bank of India

1,222.73

1,222.73

4.

National Housing Bank

450.00

450.00

5.

Bharatiya Reserve Bank Note

   
 

Mudran (Pvt.) Ltd.

800.00

800.00

6.

Infrastructure Development

   
 

Finance Co. Ltd.

150.00

 

Total

3,972.73

4,122.73

Investments in Shares of Subsidiaries and Associate Institutions

10.24. The Reserve Bank transferred its shareholding in Infrastructure Development Finance Co. Ltd. to the Central Government in 2004-05. There was no other change in the Reserve Bank’s investments in the shares of its subsidiaries and associate institutions during 2004-05 (Table 10.10).

Other Assets

10.25 ‘Other Assets’ comprise mainly fixed assets, gold holdings in the Banking Department, amounts spent on projects pending completion and staff advances. The level of ‘Other Assets’ has declined by Rs.56.20 crore (0.4 per cent) from Rs.14,459.77 crore as on June 30, 2004 to Rs.14,403.57 crore as on June 30, 2005.

Auditors

10.26 The accounts of the Reserve Bank for the year 2004-05 were audited by M/s. Khimji Kunverji & Co., Mumbai, M/s. J.L. Sengupta & Co., Kolkata, M/s. S.N. Nanda & Co., New Delhi, M/s Rajendra K. Goel & Co., New Delhi, M/s. Ford, Rhodes, Parks & Co., Mumbai and M/s M.K.Dandeker & Co., Chennai appointed by the Central Government.


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