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The Reserve Bank of India (RBI) on Thursday, 29 August, released its annual report for the financial year 2018-19, in which it raised concerns over the credit flow from non-banking financial companies (NBFCs) and the lack of domestic demand.
Ananth Narayan, professor of SP Institute of Management and Research, Mumbai while speaking to the BloombergQuint outlined two reasons which explain the increase in RBI's income this year:
The RBI's contingency fund was one of the key numbers under the scanner in the central bank's annual report after it transferred a record sum of Rs 1.76 lakh crore as surplus to the government recently.
In regard to the foreign currency accounting, he said the way RBI has been accounting its FX operations is anomalous since a lot of years.
Explaining the anomalies in the accounting, he said that as the value of the FX operations change, the rupee value also goes up, and that is taken as an accounting entry.
Now, RBI has chosen a more conventional accounting method which has led to it acquiring profit on dollars.
The RBI seems to have recognised up to Rs 40,000 crores of profit from the sale of dollars during last year from July to December, stated Narayan.
RBI has now moved to an inventory kind of valuation where they look at the weighted average cost at which they have purchased the dollars over time, and every sale is seen as a recognition of profit from the weighted rate to where they actually sell this.
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