The Reserve Bank of India has announced a record dividend of Rs 2.69 lakh crore for the central government for financial year 2025, marking a significant 27.4% increase over last year’s payout of Rs 2.1 lakh crore. At 0.75% of GDP, the dividend surpasses both the government’s budget estimate of Rs 2.25 lakh crore and most market expectations.
Stronger Fiscal Math, Continued Capex Focus
Brokerages welcomed the announcement, noting its implications for fiscal consolidation and capital expenditure. Morgan Stanley remarked that the higher-than-expected transfer aligns with the government’s fiscal consolidation target—pegged at 4.4% of GDP for fiscal 2026, down from a revised 4.8% in financial year 2025—and supports continued capex momentum. This is especially important in a global environment marked by growth headwinds and uncertain revenue outlooks.
Nomura also revised its fiscal deficit forecast downward by 0.1 percentage points to 4.4% of GDP, citing the dividend windfall. The payout provides the government with greater flexibility, reducing near-term fiscal slippage risks. BofA echoed this sentiment, noting that the dividend will help cushion ambitious revenue assumptions in the fiscal 2026 budget, especially in light of recent income tax reductions.
Economic Capital Framework Introduces Flexibility
A key structural shift accompanied the dividend announcement. The RBI’s Central Board revised the Economic Capital Framework, increasing the Contingency Risk Buffer to 7.5% of the central bank’s balance sheet. The revised CRB range—set at 4.5% to 7.5% compared to the earlier 5.5%-6.5% band—was described by the Board as a mechanism to ensure inter-temporal smoothening of surplus transfers while maintaining macroeconomic stability.
While this, as a more prudent approach, limited the dividend from reaching Rs 3.5 lakh crore, as estimated by Nomura, the adoption of the upper limit reinforces RBI’s risk management posture.
Liquidity And Rate Market Implications
Nomura estimates core system liquidity could rise to around Rs 5 lakh crore, although banking liquidity may remain near Rs 2 lakh crore. The firm expects the RBI to respond with additional liquidity infusions, likely favouring FX swaps. On the rates front, Nomura retains a bullish stance on five-year government bonds, anticipating further steepening of the yield curve.
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