RBI's dividend transfer may ease deposit rates if govt spends it: Ind-Ra

The RBI board last week decided to transfer Rs 2.11 lakh crore dividend to the government out of the profits earned in 2023-24.

India Ratings and Research (Ind-Ra) on Thursday said the Rs 2.11 lakh crore dividend transfer by the RBI is likely to ease liquidity pressure and bring down deposit rates in the banking system if the government spends the amount.

It said the mega dividend will give a fillip to the central government's fiscal position, which may lead to additional spending or fiscal consolidation or a combination of both. However, the structural challenges for banks in term of deposit accretion will continue in the medium to long term.

"The agency expects the RBI's INR 2.1 trillion dividend transfer to the government will improve the liquidity conditions and alleviate heightened pressure on the banking system deposit, leading to the easing of pressure on cost of liabilities for banks in the near term," Ind-Ra said in a statement.

The RBI board last week decided to transfer Rs 2.11 lakh crore dividend to the government out of the profits earned in 2023-24.

If the government spends the amount, it will reduce the ongoing pressure on the banking system deposit accretion and overall rates in the system, Ind-Ra said.