RBI declares record Rs 2.11 lakh crore dividend to government

RBI dividend to government: Reserve Bank of India (RBI), has announced a historic surplus transfer of Rs 2.11 lakh crore to government for fiscal year ending March, a figure significantly higher than both analysts' and government forecasts.

Government projections h initially earmarked a dividend of Rs 1.02 lakh crore from RBI, state-run banks, and or financial institutions for fiscal year 2024-25. However, RBI's unprecedented surplus transfer far exceeded se estimates, dwarfing previous year's transfer of Rs 87,416 crore.

According to Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, surge in interest rates on both domestic and foreign securities, along with a substantial increase in gross sale of foreign exchange and minimal impact from central bank's liquidity operations, likely contributed to this "whopping dividend."

Bhardwaj expects that this windfall will help ease fiscal deficit by 0.4 per cent in fiscal year 2024-25, providing relief to bond markets. Following announcement, India's benchmark 10-year bond yield dropped to its lowest level in nearly a year, signalling market optimism.

In dition to surplus transfer, RBI board decided to increase contingency risk buffer (CRB) to 6.5 per cent from 6 per cent previously, citing economy's robust and resilient performance.

Gaura Sen Gupta, an economist with IDFC First Bank, noted that higher dividend translates to ditional fiscal revenue equivalent to 0.4 per cent of GDP, potentially leing to a fiscal deficit undershoot of 0.2 per cent of GDP in fiscal year 2024-25.

While analysts h initially anticipated a surplus transfer ranging from Rs 75,000 crore to Rs 1.2 lakh crore, RBI's decision provides government with substantial flexibility to manage welfare spending and sustain capital expenditure, even in event of shortfall in disinvestment receipts.

However, iti Nayar, economist at rating agency ICRA, cautioned that while increasing funds available for capital expenditure would enhance quality of fiscal deficit, ditional spending may be challenging to incur within remaining eight months of fiscal year after final budget presentation.

budget announcement will likely occur post conclusion of ongoing election, scheduled to end on June 1 with counting on June 4. budget date will be finalised once a new government is formed.

(With Reuters inputs)