RBI’S
ANNUAL
REPORT
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RBI: The Central Bank of India
Every year releases its
Annual Report
In detail shares how much they earned
and what is the Financial position
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It is a very detailed Report which shares
PART ONE: THE ECONOMY - REVIEW AND PROSPECTS
Global & domestic economy reviews
PART TWO: THE WORKING AND OPERATIONS OF THE RESERVE BANK OF INDIA
Monetary Policy Operations
Credit Delivery and Financial Inclusion
Financial Markets And Foreign Exchange Management.
Regulation, Supervision and Financial Stability
Public Debt Management
Currency Management
Payment and Settlement Systems and Information Technology
Communication, International Relations, Research and Statistics
Governance, Human Resources and Organisational Management
The Reserve Bank’s Accounts For 2024-25
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Importance
RBI’s Profits are huge source
of Government revenue
Very detailed stats on Indian
economy
Comments on RBI’s policies
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How does RBI earn Money
Seigniorage It is difference between the return the RBI
earns on the asset it gets in exchange for the
money, and the cost of printing that money
Interest Income Where RBI earns money from assets
holds & lending Money
Forex Dealing RBI engages in forex dealing & there
also they earn profits.
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Expenses:
Printing of currency
Employee Cost
Agency Charges: Charges RBI pays to banks for
performing functions of central or state governments
Contingency funds: Transfers some amount to safety
fund kept for Bad times
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Concise Income statement
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If you Notice Major Chunk goes
towards Contingency Fund
This Proportion of 6.5-5.5% RANGE
Contingency Fund follows of Balance Sheet
This year that range 6% with ±1.5%
was updated Flexibility
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Also when RBI would
calculate the Market Risks
Include both on-balance sheet and
off-balance sheet items (like forex
forwards or swaps) when calculating
market risk.
Also consider minor foreign
currencies, not just major ones.
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Why is this significant?
Since there was this revision in
Economic Capital Framework (ECF)
RBI’s Dividend was
lower than expected
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Finshots have also
covered this
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Yet this is still
very significant
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How is RBI’s Dividend Important
to the government?
The dividend adds to the Centre’s revenue without taxing or
borrowing.
Helps plug the fiscal deficit (gap between income and
spending).
Helps banks & economy as that money is spent by the
government and also get infused into banks through spending.
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Workings of RBI’s
Balance Sheet
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RBI’s Balance sheet as % of GDP
saw slight decline
A higher % means the RBI is Doing
more intervension (like forex
purchase, buying bonds etc)
Source: RBI
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Larger balance More liquidity in Looser monetary
sheet the system policy
Shrinking balance Tightening stance (RBI is
sheet pulling back liquidity)
This trend is not a decrease but Normalization, as huge
expansion in FY22.
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Balance sheet as percentage of GDP
normalised but overall Balance Sheet Expanded.
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Visible as RBI’s balance sheet has expanded this year.
Balance sheet Expansion
came from
Gold buying & revaluation
Forex reserve increase
Loans & advances
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RBI’s Balance sheet work completely
different from Normal Banks.
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Normal Institutions
First get money (liability) use it to build assets
(e.g., a bank raises deposits, then gives loans)
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RBI (Central Bank)
Creates assets first That automatically
(e.g., buys dollars, G-Secs) creates liabilities
(e.g., when it buys dollars, it gives rupees, this shows up as
money in the system)
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RBI expands balance sheet by:
Buying government Accumulating
Cutting rates
bonds foreign reserves
Injects liquidity Stabilizes rupee Boosts lending
GOOD as Helps revive growth, boosts credit,
reduces borrowing costs.
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If too much money is pumped in too fast:
Can fuel inflation
Can create asset bubbles
(e.g., real estate, stocks)
Currency may depreciate
if too much INR is created
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Interesting
Trend Banks
& Lending
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Post slower economic growth RBI finally began its
Rate cut cycle in February 2025.
Lending Rates will Anticipated Higher
+
come down disbursements by Banks
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At the same time cost of funds
should also decline for banks.
Source: RBI
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Impact on Net Interest Margins
Cost of Funds + Lending rates = No impact on NIMS
(Decline) (decline)
Cost of Funds + Lending rates = NIMS Decrease
(Decline slower) (decline faster
that cost)
Cost of Funds + Lending rates = NIMS Increase
(Decline) (decline slower What will
that cost)
Happen?
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Understanding Lending Rates
Loans Disbursed are Floating rates
Rates are determined through process (rate below which
banks can’t lend)
RBI does monetary policy action
Rates adjustment are passed onto people and economic
impact seen.
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Banks had a slower Benefits were
process earlier passed with a lag
2010
Base Rate Systems It was on cost of funds by Banks
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MCLR (Marginal Cost of Funds
2016 based Lending Rate) introduced
Was still slow Based on formula
(Base repo rate, operating costs, current cost of carry-in cash
reserve ratio and tenor premium)
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EBLR (External Benchmark
2019 Linked Lending Rate)
Rates linked to
Faster
external benchmark
(RBI’s Repo rate & T-bills Rate)
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Private banks majority
EBLR linked
outstanding Loans
Going
Forward
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Cost of Funds + Lending rates = NIMS Decrease
(Decline slower) (decline faster
that cost)
NIMs compression more for Private Banks
than Public Banks
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ICICI Concall
Q4 FY 2025
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Here how this
has played out
SCB: Scheduled Commercial Banks
PSE: Public sector Enterprise/Banks
Credits: HDFC
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Impact of
RBI Rate Cuts
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RBI in June MPC
Cuts Repo Rates by 50Bps
Plans to cuts CRR by 100Bps
Moves stance to 'Neutral' from 'Accommodative'
Unexpected Moves from the RBI
Let’s Understand
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Have covered in Detail
How Monetary Policy Works
Today will cover the June MPC impact
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RBI take Monetary policy actions
Rate Adjustments: Repo rate - Rate @ RBI lends to Banks
Marginal Standing Facility (MSF): Rate @ Banks borrow from RBI as overnight fund
Open Market Operations: Buying/selling of Bonds
Cash Reserve Ratio (CRR): % of Deposits Banks compulsorily keep with RBI
SLR: % of deposits banks must invest in government securities.
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In November-December Inflation started to
soften around
Globally Central Banks had started to Cut Rates
September Onwards.
RBI had not cut Rate First Rate came in February 2025
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Starting December 2024 Banks was facing
huge Liquidity deficit (Peak in January 2025)
When low Liquidity
Rate cuts ineffective
credits: HDFC
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Instagram Covered in Detail how
RBI mitigated the Liquidity issue.
Cutting CRR rates in December to
VRR & OMO 2025 onwards.
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India last couple of years
had faced extreme Inflation
Since December the Inflation
started coming down
Retail Inflation Hit 6-year
low of 3.16% in April
Credits: HDFC
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High Inflation
Not Good for Economy
Moderate Inflation
Good as Policy can be
lenient to boost growth
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Next 9 month,
Golden Period
of Inflation
~ Sridhar Sivaram
Enam Holding
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After Couple of
Quarters of Slow
Growth
Q4 FY25 Witnessed
7.4% Growth
Credits: Franklin Templeton
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Adding Everything together
Loha garam hai
Lowest Inflation Maar hathodha
Surplus Liquidity in System
GDP showing positive signs
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In June MPC meeting
Cuts Repo Rates Aimed at
by 50Bps boosting lending
Plans to cuts Make sure Liquidity
CRR by 100Bps stays intact
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Moves stance to 'Neutral' from 'Accommodative'
Meaning RBI has done enough to
spur the growth in the economy
Liquidity operations
Rate Cuts
RBI’s Dividend
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Now its time for Government to commit to
the Capex and make sure India Grows.
RBI most probably wait for Inflation
before taking any action.
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