RBI board to take up dividend payout to Centre, figure seen at nearly Rs 1 lakh crore

Reserve Bank of India

The Reserve Bank of India (RBI) is likely to transfer dividend worth Rs 85,000 crore to Rs 1 lakh crore to the government in FY25, on the back of expected higher interest income from foreign securities, economists said.  The RBI's board is scheduled to meet today to determine the dividend payout.

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

“The RBI dividend is expected to be Rs 75,000 crore to Rs 85,000 crore vs Rs 87,400 crore last year. Income is expected to be supported by interest income on foreign securities and rupee securities,” Gaura Sen Gupta, Chief Economist, IDFC First Bank, said.

Further, Kanika Pasricha, Chief Economic Advisor, Union Bank of India, said in a report that the RBI would transfer a surplus of Rs 1 lakh crore to the government in FY25.

The government had budgeted Rs 1.02 lakh crore as dividend from the RBI and state-owned lenders in 2024-25. At Rs 1.02 lakh crore, the budgeted dividend revenue for the FY25 from the central bank and public sector banks is 2.3 percent lower than the revised estimate of Rs 1.04 lakh crore for 2023-24.

The revised estimate for the current year is a massive 118 percent jump, compared with the budget estimate of Rs 48,000 crore. The huge upward revision in the budget estimate comes after the RBI transferred an unexpectedly large dividend of Rs 87,416 crore in May 2023.

As per reports, the balance sheet of the RBI rose 11.4 percent on-year in FY24 due to the increase in foreign currency assets (13.8 percent on-year), loans and advances to scheduled commercial banks (136 percent on-year) and gold reserves (17.1 percent on-year).

“The rise in foreign exchange (FX) reserves (foreign currency asset) was driven by FX purchases, which accounted for 70 percent of the increase, followed by revaluation gain,” Gupta said in a report.

Also read: Centre may soon get Rs 1-lakh-crore RBI dividend boost: Report

Interest earnings

Union Bank of India, in a report dated May 10, said that the RBI primarily holds 70 percent of its balance sheet in the form of foreign currency assets and another 20 percent in domestic government bonds. The interest earnings on these securities likely remained significant and are estimated at Rs 1.5-1.7 lakh crore.

Further, the report added that interest from liquidity operations also supported RBI’s earnings as the banking system switched back into deficit mode from September 2023, after three years

Additionally, interest income on holdings of G-Secs is expected to be broadly flat, given the decline in holdings of rupee securities, partly due to sales through OMO (open market operations) and G-Sec redemptions, IDFC First Bank said.

Also read: RBI reviews eligibility criteria, board oversight norms for declaration of dividend by banks

Impact of higher dividend

Experts are of the view that the higher dividend by the RBI will support the government's liquidity surplus, and, thereafter, expenditure, going forward.

Gupta added that, in the near term, pressure on rupee liquidity could persist due to FX intervention aimed at limiting the volatility in USDINR. Liquidity in the banking system is expected to improve in H2FY25, supported by higher capital inflows.

Government spending will be delayed in the current financial year due to on-going Lok Sabha elections , whose result is due on June 4.

Experts said that the impact on the market due to higher dividend will be lesser or limited.