Ahead Of RBI Announcement, Economists Peg Surplus Transfer At Record Rs 2.5-3.5 Lakh Crore

Economists peg the Reserve Bank of India's surplus transfer at a fresh record high, led by the central bank's earnings on foreign exchange transactions.

On Thursday, the RBI Central Board reviewed the Economic Capital Framework, according to an official notification. The meet comes ahead of deciding and approving the surplus transfer to the government, expected to range between Rs 2.5 lakh crore to Rs 3.5 lakh crore. This is compared to a previous record high of Rs 2.1 lakh crore last year.

The RBI’s surplus transfer is a function of valuation gains on its reserves, earnings on forex transactions, and investment earnings, apart from the issuance of currency, Radhika Rao, senior economist at DBS Bank said. Among these, forex transactions are expected to be most significant in light of the central bank’s measures to lower rupee volatility by strong dollar purchases earlier in fiscal 2025 and difference in the current versus historical exchange rate, she explained.

Add to this the interest income on government securities and earnings from funds extended to banks in midst of previous tight liquidity. "This transfer could amount to a record high at around Rs 2.5-2.7 trillion this year,” according to estimates by Rao.

Earnings on forex transactions are expected to be substantial with gross dollar sales tracking at $371.6 billion in fiscal 2025 till February compared to $153 billion in fiscal 2024, explained Gaura Sengupta, chief economist at IDFC First bank, who estimates the RBI dividend to be between Rs 2.6 lakh crore to Rs 3 lakh crore. The historical cost of dollar purchase is tracking at 68.4, which remains substantially below the current spot rate, she explained. The combination of large quantum of gross dollar sales and low historical cost is expected to result in large gains from forex intervention.

Economists at Kotak estimate a surplus transfer ranging higher still, between Rs 3-3.5 lakh crore aided by forex sales of $375-400 billion in fiscal 2025, interest earnings from US Treasuries, interest earnings from 14% higher G-Sec holdings and no or low provisions assuming RBI keeps the economic capital framework unchanged with provisions based on available realised equity of 5.5-6.5% of the balance sheet size.

One of the factors influencing the level of provisioning will be the pace of balance sheet expansion planed for fiscal 2026. In fiscal 2025, RBI’s balance sheet grew by 6.7% year-on-year, compared to 11.4% last year, due to dollar selling as the balance of payment turned negative, Sengupta said. If revaluation gains are excluded, RBI’s balance sheet grew by only 2.4% as of March 2025, she said.

In fiscal 2026, the RBI balance sheet is assumed to expand at least in line with nominal GDP at 10.5%, Sengupta said, adding that in the past rate cutting cycles, balance sheet growth has been higher than nominal GDP.

The higher dividend creates fiscal space of 0.1% to 0.2% of GDP, estimates Sengupta. With support from the higher-than-budgeted RBI surplus and savings on a few expenditure heads, the central government is in a fairly strong position to counter the growth slowdown risks and any potential emergency spending requirements.

"We reduce gross fiscal deficit as a share of the GDP to 4.2% without any expenditure cuts or reallocation providing sufficient room for the government to choose policy actions without compromising on fiscal quality," Suvodeep Rakshit, chief economist at Kotak Institutional Equities said.

On the liquidity front, banking system liquidity has turned positive in April 2025, averaging at Rs 1.4 lakh crore or about 0.6% of NDTL. The RBI dividend will be a significant infusion to core liquidity which will take place in second half of May 2025, Sengupta said. The impact on system liquidity will be felt from June onwards, once government expenditure picks up, she added. Even after incorporating RBI dividend of Rs 2.6- 3 lakh crore, RBI will need to infuse additional durable liquidity to ensure system liquidity remains at 1% of NDTL or slightly higher by March 2026, she said.

Additional liquidity infusion required is estimated at Rs 1.6 lakh crore in the remainder of fiscal 2026, ensuring system liquidity reaches 1% to 1.2% of NDTL by March 2026.