RBI could spring a surprise with Rs 1 lakh cr dividend this month

After the taxman, the central bank. After yearlong buoyancy on the tax front, it is the turn of the Reserve Bank of India (RBI) to gladden the hearts of the finance ministry mandarins with a record dividend kitty that might be about Rs 1 lakh crore, The Economic Times has reported.

In FY24, the RBI transferred Rs 87,416 crore to the government and if the figure of Rs 1 lakh crore is achieved, it would be more than 14% higher than last year’s amount.

In the week beginning May 13, RBI went for a steep cut in the amount the government borrows trough T bills, thereby slashing by Rs 60,000 crore, the funds the Centre would have gathered through these short-term instruments. The apex bank also took some measures to ensure bigger success of an impending premature payback of earlier debt of around Rs 60,000 crore.

Both these actions are directed to utilising government funds which are lying idle at the moment due to roadblocks on expenditure due to the polls. Later this month the RBI is likely to transfer its surplus funds to the government. “We expect the RBI to transfer a surplus of INR 1,000 billion (₹1 lakh crore) to the government in FY25… while there are many moving parts in the RBI dividend calculation, our assessment shows a likely repeat of a strong dividend number,” Union Bank of India’s chief economic advisor, Kanika Pasricha wrote in a recent note.

Earnings from Foreign Assets Calculations conducted by analysts based on public information about the RBI’s balance sheet make a case for the central bank to surpass the surplus of Rs 87,416 given to the Centre last year.

The head of research at ICICI Securities Primary Dealership, A Prasanna, wrote in a note addressed to it clients, “Totalling up all the operating expenses and subtracting them from total income, we arrive at a surplus (before provisions) of Rs 3.4 trillion (Rs 3.4 lakh crore). Once we account for provisions of Rs 2.2 trillion, that leaves us with a dividend of Rs 1.2 trillion. Such a large dividend is likely to be paired with the maximum permissible rise in (the central bank’s) core capital ratio as well, thereby strengthening RBI’s balance sheet for a rainy day.”

A rise in the interest income of its foreign exchange is one of the key factors contributing to the generation of large surplus by the central bank. Analysts are of the opinion that though RBI sold and purchased a smaller amount of US dollars in FY24 compared to FY23, it would have earned a large amount through its foreign assets. Incidentally, FY23 was the year, when the INR was exposed to high volatility in the market and the central bank had to step in to protect it from the volatility.

Last year, while the Union budget estimated a total dividend of Rs 48,000 crore, the RBI sprang a pleasant surprise by chipping in with Rs 87, 416 crore. This year, the finance ministry’s grin is set to be wider.