Centre to review Jalan panel's RBI dividend formula, some tweaks likely: Sources

Government officials noted that the formula had served the economy well, especially during the COVID-19 pandemic, when higher surplus transfers helped fund emergency fiscal responses without destabilising monetary policy.

The government is preparing to review the Bimal Jalan committee framework that governs the Reserve Bank of India’s surplus transfer to the Centre which may require some tweaks, even as the RBI board approved record dividend transfer of Rs 2.69 lakh crore to Centre for FY25, senior government sources told Moneycontrol on May 23.

This RBI dividend figure is higher than the transfer for FY24.

“The RBI dividend is announced according to the Bimal Jalan committee framework. But it’s time to review the formula. The Bimal Jalan committee formula period has come to an end,” sources said, indicating that changes - though not major - may be considered in-line with the evolving macroeconomic environment.

The Bimal Jalan Committee, constituted by the Reserve Bank of India (RBI) in 2018, was tasked with reviewing the central bank’s Economic Capital Framework (ECF). Chaired by former RBI Governor Bimal Jalan, the panel examined the appropriate level of risk provisioning and surplus reserves to be maintained by the RBI, balancing financial stability with the government’s need for fiscal support. In its 2019 report, the committee recommended a revised framework for determining the RBI’s excess capital and suggested a mechanism for transferring surplus funds to the government, which paved the way for a more transparent and rules-based approach to central bank transfers.

Government sources noted that the formula had served the economy well, especially during the pandemic years, when higher surplus transfers helped fund emergency fiscal responses without destabilising monetary policy. “The formula has stood the test of time during COVID. But at a time when there is a steady and consistent recovery in the economy, some kind of alteration will be done - nothing major,” the source added.

The RBI’s annual surplus transfer to the Centre is a key component of the government’s non-tax revenue and plays an important role in meeting its fiscal deficit targets. The actual dividend could vary based on RBI’s income and provisioning.

Any changes to the current framework will be guided by the need to ensure the central bank’s financial stability, while enabling predictable and adequate support to the government’s fiscal math.