In a surprise gift to the government, the Reserve Bank of India’s (RBI) Central Board of Directors today approved a record dividend transfer of Rs 2.10 trillion for 2023-2024. The amount is more than double what was budgeted, shoring up fiscal revenues.

The government had budgeted to receive Rs 1.02 trillion in dividends from the RBI and state-controlled banks. The RBI’s annual payout to the government comes from the surplus income it earns on investments and valuation changes on its dollar holdings, and the fees it gets from printing currency. Last year, the RBI transferred Rs 87,416 crore to the government.

State Bank of India’s group chief economic adviser Soumya Kanti Ghosh said the RBI’s income in FY 24 is projected to be around Rs 3.75-4 trillion, a sharp increase from Rs 2.35 trillion in FY 23. “While all other things in the balance sheet are either steady or increasing as per trend, however, foreign investments have increased sharply. Therefore, nearly 60-70% y-o-y increase in the income is expected to be from interest income from foreign securities as well as exchange gain from foreign exchange transactions,” he said.

In a statement, the central bank said, the transferable surplus for FY24 has been arrived at on the basis of the economic capital framework (ECF) adopted by the RBI on August 26, 2019, as per recommendations of the Bimal Jalan-led expert committee. Analysts had expected a surplus transfer in the range of Rs 75,000 crore to Rs 1.2 trillion. India’s benchmark 10-year bond yield dropped four basis points to 7.04%.

The RBI board also raised the provisions required under the contingent risk buffer (CRB) to 6.50% for FY24 from 6% in previous fiscal, in-line with the Jalan committee recommendations. CRB provisions are essentially used during any unexpected and unforeseen contingencies.

“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 5.50% of the Reserve Bank’s Balance Sheet size to support growth and overall economic activity,” the RBI said, adding that with the revival in economic growth in FY23, the CRB was increased to 6%. As the economy remains robust and resilient, the board has decided to increase the CRB to 6.50% for 2023-24, the RBI said.

According to Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, higher interest rates both on domestic and foreign securities, significantly high gross sale of forex along with limited drag from liquidity operations compared to the previous year could have led to such a whopping dividend.

The expected dividend transfer from the RBI will be for FY24, but will be reflected in the government’s account for FY25.

Madan Sabnavis, chief economist at Bank of Baroda, said  while forex reserves revaluation would boost income, more likely valuation of bond portfolios could have led to this increase. Overall income would be higher as the RBI was generally lending to banks this year.

Soumyajit Niyogi, Director, India Ratings & Research, said that the huge surplus transfer from the central bank to the government will not only aid fiscal condition, but also change banking system liquidity conditions in a meaningful way. Impact on the short term rates will be maximum, he added.

Aditi Nayar, chief economist at ICRA Ratings, said while increasing the funds available for capital expenditure would certainly boost the quality of the fiscal deficit, the additional spending may be difficult within the eight-odd months left after the Union Budget is presented and approved by Parliament.

Reserve Bank of India’s surprise gift to govt