RBI Board approves dividend of Rs 2.11 lakh crore to government for FY24

The Reserve Bank of India's (RBI) Central Board of Directors has agreed to transfer of Rs 2.11 lakh crores as surplus to the government for the financial year 2023-24. The RBI said in a statement on May 22 said the surplus amount calculation is based on the Economic Capital Framework (ECF) adopted by the central bank on August 26, 2019, as per recommendations of the Bimal Jalan committee.

Every year, the RBI transfers a certain amount to the central government through the surplus income it generates from investments, fluctuations in the valuation of its dollar reserves, and revenue earned from currency printing fees. Last fiscal year, the central bank had given Rs 87,416 crore to the Centre as surplus. But this year's amount is somewhat the biggest and 141% more than FY23.

“Higher interest rates both on domestic and foreign securities, significantly high gross sale of FX along with limited drag from liquidity operations compared to the previous year have probably led to such a whopping dividend. Positively, this comes with the contingency risk buffer being kept at the higher end of the statutory requirement. We expect such a windfall to help fiscal deficit ease by 0.4% in FY25. Scope for lower borrowing being announced in the upcoming Budget will now provide significant respite to the bond markets,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.

"The amount of Rs. 2.11 trillion is well above the budgeted figure of Rs. 1.5 trillion in the Interim Budget for FY2025 under dividends and profits, which includes dividends from PSUs. The higher-than-budgeted RBI surplus transfer would help to boost the GoI's resource envelope in FY2025, allowing for enhanced expenditures or a sharper fiscal consolidation than what was pencilled into the Interim Budget for FY2025. Increasing the funds available for capex would certainly boost the quality of the fiscal deficit. However, the additional spending may be difficult to be incurred within the 8-odd months left after the Final Budget is presented and approved by Parliament," said Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd.

Besides, the RBI board also agreed to raise the contingency risk buffer to 6.5% from 6% previously. During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of Covid-19 pandemic, the Board had decided to maintain the CRB at 5.50 per cent of the Reserve Bank’s Balance Sheet size to support growth and overall economic activity.

"With the revival in economic growth in FY 2022-23, the CRB was increased to 6.00 per cent. As the economy remains robust and resilient, the Board has decided to increase the CRB to 6.50 per cent for FY 2023-24," the RBI said in a statement.