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The Reserve Bank of India (RBI) on Friday approved a dividend payment of 30,307 crore to the Centre for the fiscal year ended March 2022, sharply lower than the government’s expectations.

The bank’s central board of directors also decided to maintain the contingency risk buffer (CRB) at 5.50%. CRB, which comes from the contingency fund, is risk provisioning made from economic capital to cover monetary, credit, fiscal stability, and operational risks.

In the 2022 budget, the government had estimated that it would receive 73,948 crore as dividend from the RBI and state-run lenders for FY22, which would be transferred this fiscal.

The budgeted dividend is 27% lower than the 1.01 trillion the Centre received in FY22. Of this, the RBI had contributed a massive 99,122 crore.

Assuming that the government would receive an additional 10,000 crore as dividend from state-run banks, this would still fall short of the budgeted amount by about 30,000 crore.

“The spillover of the Life Insurance Corporation of India’s initial public offering would absorb a large part of the lower-than-estimated surplus transfer from the RBI to the central government. In addition, the government’s net tax revenues are likely to surpass the budget estimates by 1.4 trillion even if the excise duty on fuels is reduced. At the same time, food and fertilizer subsidies will considerably exceed the budgeted level. All in all, we expect the fiscal deficit to come in at 6.3% of gross domestic product in FY23," said Aditi Nayar, chief economist at ICRA Ltd. The government had set a fiscal deficit target of 6.9% for FY22.

The 30,307 crore transferred as surplus is for a full financial year. In 2020, the RBI had moved from a July-June accounting year to April-March to align its fiscal year with that of the government. The central bank pays dividends to the government every year from the surplus it generates from market operations, investments and printing of currency.

One of the reasons for the lower dividend this fiscal could be that the RBI paid a higher interest on its variable reverse repo auctions last year. The central bank had conducted VRRRs to suck out excess liquidity that it had infused into the banking system following the onset of the pandemic in March 2020.

While RBI paid a fixed interest of 3.35% on the reverse repo window, it paid a higher interest of 3.55-3.9% on VRRR auctions.

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