RBI To Pay Record Rs 2.69-Lakh-Crore Dividend To Government
Economists had pegged the surplus transfer to government in the range of Rs 2.5-3.5 lakh crore for the fiscal.
The Reserve Bank of India will pay Rs 2.69 lakh crore—the highest-ever surplus—as dividend to the central government for fiscal 2025, the central bank said in a statement on Friday.
This compares with Rs 2.1 lakh crore and Rs 87,420 crore transferred to the government in the financial year-ended March 2024 and 2023 respectively. Economists had pegged the surplus transfer to the government in the range of Rs 2.5-3.5 lakh crore for the fiscal.
The RBI board also revised the Economic Capital Framework. The revised framework stipulates the risk provisioning under the Contingent Risk Buffer be maintained within a range of "6.0 ± 1.5% of the balance sheet size as against the existing level of 6.5%, with a lower bound of 5.5%".
The surplus transfer this year is likely a function of higher forex sales by the RBI, higher earnings on forex assets, and higher earnings on VRR operations as this was a deficit year, Madan Sabnavis, chief economist at the Bank of Baroda said.
The government targeted Rs 2.56 lakh crore this year from RBI plus PSBs and other government FIs. "With this increase, we believe there could be an additional Rs 50-60,000 crore that will be available assuming that banks' dividend could be lower in a declining interest rate era," said Sabnavis. Still, he does not expect any substantial impact on the government’s fiscal deficit. "At best there could be a benefit of around 0.1% in deficit which can improve from 4.4% to 4.3%", he said.
During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of Covid-19 pandemic, the board had decided to maintain the CRB at 5.5% of the RBI's balance sheet size to support growth and overall economic activity, the central bank stated.
The CRB was increased to 6% for fiscal 2023 and to 6.5% for fiscal 2024. "Based on the revised ECF, and taking into consideration the macroeconomic assessment, the Central Board decided to further increase the CRB to 7.5," the central bank said in its press release.
The Central Board said that the extant ECF had met its objective of ensuring a resilient balance sheet for the RBI, while maintaining a healthy transfer of surplus to the government.
As such, it was decided to retain the broad principles underlying the extant ECF, with no major changes in risk assessment methodologies. However, certain changes have been made with the objective of further strengthening the framework to align better with any emerging risks to the balance sheet of the RBI.
Other changes include
The computation of market risk buffer requirement to adopt an integrated approach.
Widening of the range for buffers for Monetary and Financial Stability risks to 5.0 ± 1.5% of balance sheet size vis-à-vis the existing range of 4.5-5.5%.
Consequently, the Contingent Risk Buffer, which includes buffers for Monetary and Financial Stability risk, Credit risk and Operational risk, would be maintained in the range of 6.0 ± 1.5% of the balance sheet size.
With respect to the Surplus Distribution Policy, any available equity in excess of 7.5% of the balance sheet size (after considering shortfall in market risk buffers, if any) may be written back from the Contingency Fund to income.
In case the available equity is below the lower bound of its requirement, no surplus will be transferred to the Government till at least the minimum level of Required Realised Equity is achieved.
