Windfall for Centre as RBI transfers whopping Rs 2.11 trillion for FY24

This is the highest ever profit sharing by the central bank and is more than double what the Centre had budgeted for the year at Rs 1.02 trillion.
Reserve Bank of India
Reserve Bank of India (Photo | PTI)

MUMBAI: The Reserve Bank has said its central board of directors which met here Wednesday has approved the transfer of a record Rs 2.11 trillion as surplus transfer/dividend payout to the central government for fiscal 2024. This is the highest ever profit sharing by the central bank and is more than double what the Centre had budgeted for the year at Rs 1.02 trillion.

“The central board of directors of the RBI approved the transfer of Rs 2,10,874 crore as surplus to the government for the accounting year 2023-24,” the monetary authority said in a statement.

In fiscal 2023, the RBI paid Rs 87,416 crore in dividend to the central government and the year before it was paid Rs 48,000 crore.

The central bank further said, “The transferable surplus for the year 2023-24 has been arrived at on the basis of the economic capital framework (ECF) adopted by the Reserve Bank on August 26, 2019 based on the recommendations of the panel headed by former RBI governor Bimal Jalan.”

Aditi Nayar, the chief economist at Icra Ratings, said the profit transfer of Rs 2.11 trillion is well above the budgeted figure of Rs 1.5 trillion in the interim budget for FY25 under dividends and profits, which includes dividends from central government units.

"The higher-than-budgeted surplus transfer would help boost the government's resource envelope in FY25, allowing for enhanced expenditure or a sharper fiscal consolidation than what was pencilled into the interim budget," she said.

Reacting to the surprise news, the benchmark 10-year bond yields dropped 4 basis points to 7% after the announcement as the market is expecting the government to borrow lower than budgeted as the amount is more than double -- 118 percent to be precise -- what was budgeted.

The 608th meeting of the central board, held under the chairmanship of the governor Shaktikanta Das, has reviewed the global and domestic economic scenario, including risks to the outlook. The board also approved the RBI annual report and financial statements for FY24.

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It may be noted that the Jalan panel had recommended that the risk provisioning under the contingent risk buffer (CRB) be maintained within a range of 6.5-5.5 percent of the RBI’s balance sheet.

The RBI statement further said during accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the Covid pandemic, the board had decided to maintain the CRB at 5.50 percent of the balance sheet to support growth and overall economic activity. But with the revival in economic growth in FY23, the CRB was increased to 6 percent.

“As the economy remains robust and resilient, the board has decided to increase the CRB to 6.50 percent for FY24 and accordingly transfer Rs 2.11 trillion of the surplus to the government," it said.

According to Kanika Pasricha, the chief economic advisor at Union Bank of India, the government had budgeted Rs 1.02 trillion as dividend from the RBI and state-owned lenders in FY25.

According to Gaura Sen Gupta, the chief economist at IDFC First Bank, the RBI balance sheet rose 11.4 percent in FY24 due to the increase in foreign currency assets which rose 13.8 percent on-year, while loans and advances to scheduled commercial banks jumped 136 percent and gold reserves rose 17.1 percent as it has bought over 25 tonnes in the first three months of 2024.

"The rise in foreign exchange reserves was driven by forex purchases by the RBI, which accounted for 70 percent of the increase, followed by revaluation gain,” Gupta said in a report.

According to a Union Bank report, the RBI primarily holds 70 percent of its balance sheet in the form of foreign currency assets and 20 percent in domestic government bonds and has earned an interest of Rs 1.5-1.7 trillion from these in FY24. Further, interest from liquidity operations also supported RBI earnings as the banking system switched back into deficit mode from September 2023, after three years of surplus.

Experts are of the view that the higher dividend by the RBI will support the government's liquidity surplus, and, thereafter, expenditure, going forward.

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The central board of the RBI has 13 members. Apart from the governor, the other members include the four deputy governors -- Michael Debabrata Patra, M Rajeshwar Rao, T Rabi Sankar and Swaminathan J -- and eight external members -- Satish K Marathe, Revathy Iyer, Anand Mahindra, Venu Srinivasan, Pankaj Ramanbhai Patel and Ravindra H Dholakia apart from economic affairs secretary Ajay Seth and financial services secretary Vivek Joshi.

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