RBI to pay ₹ 50,000 crore dividend to govt for FY18
Transfer of surplus money will give the govt more elbow room to infuse capital into public sector banks
Mumbai: The Reserve Bank of India (RBI) will transfer ₹50,000 crore of its surplus money to the government, the highest since 2015-16, in a partial relief for the latter struggling to replenish public sector banks.
The transfer gives the government more elbow room to infuse capital into the banks it owns. In October 2017, the government had said it would infuse ₹2.11 trillion into public sector banks through a mix of recapitalization bonds (₹1.35 trillion), direct infusion from budgetary allocations (₹18,000 crore) and market borrowing (₹58,000 crore).
“Based on consolidated numbers, one would have expected the surplus to be lower. However, this is good news from the fiscal perspective in a situation when divestment is looking uncertain,” said Abheek Barua, chief economist, HDFC Bank.
The Economic Surveys of FY16 and FY17 had also pressed for a bigger transfer of excess capital from RBI to the government.
“There is no particular reason why this extra capital should be kept with the RBI. Even at current levels, the RBI is already exceptionally highly capitalized. In fact, it is one of the most highly capitalized central banks in the world. So, it would seem to be more productive to redeploy some of this capital in other way,” said the FY17 Economic Survey.
The survey had also made suggestions that the surplus could be used to recapitalize public sector banks and improve the government’s fiscal position.
However, the economic survey had also warned that the surplus transfer exercise should not undermine the central bank’s independence.
“It cannot be emphasized enough that any strategy to use the excess capital must be done carefully that in no way undermines or circumvents the relevant laws. It must also be done with the full cooperation of RBI to ensure that RBI’s independence and credibility are in no way undermined,” the survey added.
In FY17, the central bank had transferred a lower surplus owing to the huge costs it incurred in managing the demonetization exercise. RBI’s expenses include interest it pays to banks when it absorbs liquidity from the system through its repo operations.
A clearer picture on the surplus transfer will emerge when RBI details its accounts later this month. Historically, large surpluses have come at the cost of transfer to contingency reserves. During the tenure of former governor Raghuram Rajan, RBI transferred over ₹65,800 crore to the government for two consecutive years.