Highlight
• The government expected to receive Rs 73,948 crore in dividends from the central bank
• The RBI had contributed a whopping Rs 99,122 crore to this total
On May 20, the Reserve Bank of India’s (RBI) Central Board of Directors approved the transfer of Rs 30,307 crore to the Centre as a surplus for FY22.
In addition, the board decided to keep the Contingency Risk Buffer at 5.50 percent
The dividend for FY22, transferred in FY23, is significantly lower than what the government expected. The government estimated in the 2022 Budget that it would receive Rs 73,948 crore in dividends from the central bank and state-run lenders in FY23.The budgeted dividend revenue from the central bank and PSU banks was Rs 73,948 crore, which was 27% less than the Rs 1.01 lakh crore received by the Centre in FY22.
The RBI had contributed a whopping Rs 99,122 crore to this total
The surplus of Rs 30,307 crore transferred is for the entire fiscal year. To align its fiscal year with that of the government, the RBI switched from a July-June accounting year to an April-March accounting year in 2020. As a result, the transition period lasted nine months, from July 2020 to March 2021. Despite a shortened fiscal year, the central bank was able to transfer Rs 99,122 crore to the Centre last year.
The RBI’s latest dividend is lower than last year’s because the central bank is likely to have received less interest income from its liquidity management operations.
Following the influx of massive amounts of liquidity into the banking system following the onset of the coronavirus pandemic in March 2020, the central bank conducted massive reverse repo operations to suck out the excess liquidity on a temporary basis in FY22.
On these reverse repo operations, the RBI pays banks interest. As a result, the RBI incurs expenses, reducing its net interest income.
The RBI’s detailed accounts will be published in its annual report, which is expected later this month
The sharply reduced RBI dividend will come as a surprise to the government. Following the change in the central bank’s economic capital framework in August 2019, the RBI’s dividend has become an even more important source of revenue for the Centre in recent years.
As a result of the change, even larger sums were transferred to the government. The dividend was increased after the RBI accepted the recommendations of the expert committee led by Bimal Jalan.
