RBI may transfer ₹1 lakh crore dividend to Centre
The Reserve Bank of India (RBI) is predicted to transfer a substantial dividend, potentially around ₹1 lakh crore, to the Indian government. This move could significantly strengthen the Centre's financial position. The forecast follows recent actions by the RBI, including a significant reduction in the government's borrowing through Treasury Bills. The RBI is expected to announce the transfer of its surplus funds to the government later this month.
Centre's borrowing through Treasury Bills reduced by ₹60,000 crore
Last week, the RBI announced a cut of ₹60,000 crore in short-term Treasury Bills, limiting the funds that the Centre could have raised. Additionally, the central bank has implemented strategies to ensure success in an upcoming operation where the government plans to prematurely repay ₹60,000 crore of previous borrowings. These actions aim to utilize dormant government funds due to election-related spending constraints.
Analysts predict repeat of strong dividend number
Union Bank of India's chief economic advisor, Kanika Pasricha, recently stated in a research note: "We expect the RBI to transfer a surplus of ₹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." This prediction suggests that the Centre's financial position may soon see considerable improvement.
RBI's surplus transfer could surpass last year's
Analysts' calculations based on public information about the RBI's balance sheet suggest that it could surpass last year's surplus transfer of ₹87,416 crore given to the Centre. A Prasanna, head of research at ICICI Securities Primary Dealership, said RBI has a surplus (before provisions) of ₹3.4 lakh crore. After taking into account the provisions of ₹2.2 lakh crore, the central bank is left with a dividend of ₹1.2 lakh crore, as per Prasanna.
Interest increase on foreign exchange assets boosts surplus
A key factor contributing to this large surplus transfer could be a sharp increase in interest that the RBI would have earned through its foreign exchange assets, amid aggressive rate increases by the US Federal Reserve over the last couple of years. Despite the RBI's gross sales and purchases of US dollars being lower in FY24 than FY23, analysts still expect a significant boost to the central bank's earnings from foreign assets.
