RBI To Pay Record Rs 2.1 Lakh Crore Dividend To Government For FY24

The Reserve Bank of India will pay Rs 2.1 lakh crore—the highest-ever surplus—as dividend to the central government for fiscal 2024, the central bank said in a press release on Wednesday.

This compares with Rs 87,420 crore transferred to the government in the financial year-ended March 2023. Economists polled by Bloomberg had pegged the surplus transfer to government at Rs 1 lakh crore for the fiscal.

"It is an excellent step by RBI. It will certainly help in achieving the government the glide path of FD and the government in improving infrastructure and development," said Vivek Joshi, secretary of Department of Financial Services.

The risk provisioning under the contingent risk buffer will be maintained within a range of 6.5% of the RBI's balance sheet, from 6% in FY23 to contain volatility in the financial system.

"Foreign securities part on the RBI's balance sheet has grown quite significantly over the last year, and the interest rates on these securities are also higher because global interest rates remained elevated. It is possible that it could have contributed to substantial weight to higher dividend," according to Teresa John, economist at Nirmal Bang Securities Pvt.

A moderation in yield on domestic government bonds in FY24 may have also helped erase any mark-to-market loss incurred by RBI on rupee securities, John said. "On foreign securities portfolio, we were anticipating some mark-to-market losses because global yields have continued to rise. But, probably it was lesser than what market was expecting. So, these are two elements of surprise."

A record dividend payout would help the government meet its budget deficit target of 5.1% of GDP, and amp up revenue for any government that takes office after general elections conclude early next month. In the interim budget presented in February, the government announced a borrowing plan of Rs 14.13 lakh crore at a record high in the financial year ending March 2025.

This would offer the next government greater flexibility to spend, according to Vivek Kumar, economist at QuantEco Research.

"This would give a 40 basis point cushion to FY25 GDP-to-fiscal deficit. If other things remain where they are, the fiscal deficit can potentially go to 4.7%. The government can have a lot of wiggle room on the expenditure side," Kumar said.

The new government will announce the Union budget for the full year in July. 

RBI makes an annual payment to the government from the surplus income it earns on investments, fees on currency printing, and valuation changes on its dollar reserves.

The announcement of the record dividend sent the yield on the 10-year benchmark government bond to 7.05%, down 3 basis points.