Gains from dollar sales, interest income key factors for higher RBI dividend to govt: Analysts

Mint

7 days ago

Mumbai, May 26 (PTI) Substantial gains from US dollar sales and interest income from securities prompted the Reserve Bank to announce a record ₹ 2.7 lakh crore annual dividend to the central government, according to analysts.
The Reserve Bank on Friday announced a record ₹ 2.69 lakh crore dividend to the government for FY25, helping the exchequer to tide over challenges posed by US tariffs and increased spending on defence due to the conflict with Pakistan.
The decision on the dividend payout was taken at the 616th meeting of the Central Board of Directors of Reserve Bank of India held here under the Chairmanship of Governor Sanjay Malhotra.
The central bank has transferred ₹ 2.1 lakh crore dividend to the government for the fiscal 2023-24. The payout was ₹ 87,416 crore for 2022-23.
DK Srivastava, Chief Policy Advisor, EY India, said the RBI has been making higher and higher surplus transfers to the government after the Covid year of 2021-22.
"This transfer is in spite of the RBI raising the Contingent Risk Buffer to 7.5 per cent for 2024-25 from its previous level of 6.5 per cent for 2023-24. The main reason for RBI's increased income relates to its foreign exchange operations, which included the selling of large amounts of USD and higher interest income," Srivastava said.
In a report, CareEdge said though the RBI dividend is higher compared to the previous year, it has come below the market expectations centred around higher than ₹ 3 lakh crore.
Increased risk provisioning under the revised Economic Capital Framework (ECF) reined in the dividend at ₹ 2.7 lakh crore, it said.
"With the RBI yet to release its annual report, the reasons behind the higher surplus reported for FY25 are still awaited. However, we expect that the substantial gains incurred from dollar sales throughout the year may have been the key contributing factor for this record dividend transfer," CareEdge said.
Furthermore, other factors like the interest income from rupee securities and foreign securities could have also underpinned the higher dividend amount to some extent, it added.
Economists at SBI, in a report, said the Reserve Bank's bumper dividend will ease the fiscal position of the government and help bolster growth in the world's fourth-largest economy.
Finance Minister Nirmala Sitharaman in her Budget for 2025-26 projected a dividend income of ₹ 2.56 lakh crore cumulatively from the RBI and public sector financial institutions.
With the RBI's transfer, this number would now be much higher than the budgeted estimates.
"We expect the fiscal deficit to ease by 20 basis points from the budgeted level to 4.2 per cent of GDP. Alternatively, it will open up for additional spending for around ₹ 70,000 crore, other things remaining unchanged," according to the latest edition of SBI Research's Ecowrap.
In a report, Emkay Global Financial Services said the lower-than-expected surplus transfer appears to be largely on account of the RBI revising the risk provisioning range under the Contingent Risk Buffer (CRB).
"As of now, we do not expect Centre's fiscal math to change drastically because of this. The incremental gain from the higher RBI dividend is expected to partly offset potential shortfalls in tax revenues and lower-than-expected nominal GDP growth. Accordingly, we maintain our FY26 gross FD/GDP target at 4.4 per cent, in line with the budget estimate," it said.
On Friday, the central bank said the transferable surplus for the year (2024-25) has been arrived at on the basis of the revised ECF, which stipulates that the risk provisioning under the CRB be maintained within a range of 7.50 to 4.50 per cent of the RBI's balance sheet.
During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the Covid-19 pandemic, the Central Board of Directors of the Reserve Bank of India decided to maintain the CRB at 5.50 per cent of the RBI's Balance Sheet size to support growth and overall economic activity.
The CRB was increased to 6 per cent for FY 2022-23 and to 6.50 per cent for FY 2023-24.
Based on the revised ECF, and taking into consideration the macroeconomic assessment, the Central Board decided to further increase the CRB to 7.50 per cent.