How Does RBI Make Profits When US Fed and BoE are Bleeding?

The RBI Money Machine: Why India’s Central Bank Is Raking in Profits While the Fed and BoE Bleed Red

By P. SESH KUMAR

NEW DELHI, June 4, 2025 – In a year when some of the world’s biggest central banks have sunk into losses—running into hundreds of billions of dollars—the Reserve Bank of India (RBI) is defying global trends. With a record surplus transfer of ₹2.69 lakh crore in FY25 and net profits of ₹2.11 lakh crore in FY24, the RBI has stunned even market veterans.

The RBI manages to stay wildly profitable while its counterparts like the US Federal Reserve and the Bank of England struggle under the weight of rising interest costs, past asset purchases, and operational liabilities. Using relatable analogies and simplified examples, we unpack this seeming paradox and decode why India’s central bank is the global outlier—for now.

India’s Banker to the Nation… and the King of Profits

Imagine a man who does not run a shop, does not make any product, does not advertise on TV, and yet somehow earns more than the country’s richest companies—more than Reliance, TCS, and Infosys combined. That, in simple terms, is the Reserve Bank of India.

In FY24, the RBI made a staggering ₹2.69 lakh crore in net profit. To understand this magic trick, let us look at its “income model,” which is very different from how most businesses—or even most central banks—operate.

Let us start with the RBI’s biggest cash cow: Government Bonds. Think of it as the RBI parking its funds into giant fixed deposits. These are not with banks but with the Indian government, called G-Secs (government securities). Now, RBI holds over ₹51 lakh crore worth of these bonds. If the average interest is 6.5%, the RBI quietly earns over ₹3.3 lakh crore each year—no risk, no marketing, just steady income.

Then comes foreign exchange reserves—a whopping $640 billion pile of global assets, parked across US and European bonds, gold, and IMF accounts. We can think of this as India’s giant piggy bank sitting abroad. As interest rates in the US and Europe have gone up in recent years, the RBI now earns more returns on these holdings. Even a modest 3% yield brings in around ₹1.6 lakh crore. Add some currency trading profits, and it is a neat jackpot.

RBI’s Regular Surplus Transfers to Govt Now Worth CAG Interest?

Seigniorage is another uniquely central bank phenomenon. It means profit from printing money. If it costs just ₹2 to print a ₹100 note, the remaining ₹98 is pure profit (technically speaking). Multiply that with ₹34 lakh crore of currency in circulation, and we get an additional ₹60,000 crore annually. No business can dream of such margins.

The RBI also trades in bonds through its open market operations (OMOs). We can think of it as buying low and selling high, just like a seasoned investor. In FY24, such trades brought in ₹30,000–₹40,000 crore.

Repo operations are another income stream. Banks in India often borrow short-term money from the RBI at what is called the repo rate (currently around 6.5%). Just as any lender earns interest, so does the RBI—adding another ₹8,000–₹10,000 crore to the kitty.

Add to this small but steady earnings from fees, penalties, and services—like charging banks for NEFT/RTGS transfers, licensing NBFCs, penalizing defaulters—and revaluation gains from gold (especially when global prices spike), and we are looking at a massive balance sheet of over ₹70 lakh crore.

Now here is the kicker: the RBI doesn’t have to pay out dividends to shareholders, run sales campaigns, or deal with bad loans. Its only “customer” is the Indian Economy. Government has started treating RBI as an ATM since some time, and the performance of Governors is likely being judged by the amounts of dividend transferred to Government.

One question may arise in any inquisitive mind. Why Then Are the Fed and Bank of England Bleeding?

If the RBI is minting money, why are its Western cousins like the US Federal Reserve (Fed) and Bank of England (BoE) reporting massive losses?

The answer lies in the way they handled the COVID crisis and the aftermath.

When the pandemic hit, the Fed and the BoE launched aggressive Quantitative Easing (QE)—they printed trillions of dollars and pounds to buy long-term government bonds. At that time, interest rates were near zero, and the bonds offered only 1–2% returns.

Now, to control inflation, these central banks have hiked interest rates to 5–6%. But here is the catch: they are paying high interest (on overnight bank reserves) while still holding those old low-yielding bonds. This mismatch—borrowing at 5%+ and earning at 1.5%—is causing a reverse income effect. It is like buying old houses with fixed rent but suddenly having to pay double the mortgage. In 2023 alone, the Fed is said to have reported losses of over $100 billion.

The RBI avoided this trap by being conservative in its bond purchases and not going too deep into ultra-long-duration assets at low interest rates. It held its fire during QE-style experiments and did not over-expand its balance sheet. Experts say this prudence is now paying off handsomely.

Also, the RBI does not pay interest on the full ₹34 lakh crore of currency in circulation, unlike the Fed, which pays interest on bank reserves. This cuts RBI’s cost of operations drastically.

Tariffs and Trade Tensions: Unpacking US-India Economic Tango

Let us try to understand this with a possible ‘Real-World Analogy’ Imagine three friends: Ravi (RBI), Fred (Fed), and Ben (BoE). All three decide to invest in rental properties.

Fred and Ben go all out in 2020–21, buying large houses with floating-rate mortgages. They are collecting rent (interest from bonds) at ₹2 per month, but now mortgage rates have shot up, and they must pay ₹5 every month to their banks. They’re bleeding.

Ravi, meanwhile, buys a mix of stable properties with fixed rents and no risky mortgages. He even gets rent from his tenants (banks borrowing at repo), earns profit from running a mint (printing currency), and collects service charges. He is sitting pretty.

So, is it a matter of Luck, Prudence, or Structure?

The RBI’s massive profits in FY24 and FY25 are the result of a structural advantage (like seigniorage and no interest outgo on currency), clever asset management (foreign reserves and bond strategy), and fiscal symbiosis (holding Indian G-Secs). The conservative approach—eschewing global QE mania—helped RBI avoid the trap many others fell into.

The next logical question is would this last forever? If global yields fall again or if RBI is forced to absorb excess liquidity through costly means, its profits could shrink. Still, for now, the Indian central bank remains the unsung champion—generating a surplus without selling a single product, simply by understanding the power of scale, sovereignty, and patience.

It is safe to say that India’s silent profit machine has spoken—and the numbers roar louder than any press conference.

(This is an opinion piece; views expressed solely belong to the author)

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