RBI dividend: Fiscal boost for government from record ₹2.69-trillion payout for FY25

Mumbai: The central board of the Reserve Bank of India (RBI) has decided to transfer a record ₹2.69 trillion as surplus to the government for the fiscal year 2024-25, the central bank said in a statement on Friday. The payout is 27% higher than the ₹2.1 trillion dividend of FY24.

According to economists, the marginal increase in dividend payout will offset a miss in taxes or disinvestment receipts, or higher-than-budgeted expenditure in the fiscal year. 

The higher dividend is likely to be on account of earnings on foreign exchange transactions. RBI’s gross dollar sales surged to $399 billion in FY25 from $153 billion in FY24.

Bond dealers, however, are disappointed as the market was expecting a surplus of ₹3 trillion. Yields had rallied by 12 basis points over the past 10 days on hopes of higher surplus. 

“This is a disappointment for the market, and we can expect some profit booking after the steep rally which we saw in the last 10 days,” said Murthy Nagarajan, head–fixed income at Tata Asset Management.

While the FY25 payout is marginally higher than the government’s budgeted estimate of ₹2.56 trillion, it fell short of analyst estimates of ₹2.7-4 trillion.

The lower-than-expected transfer follows a change in the range of contingency risk buffer (CRB) that the central bank can maintain to 6% +/-1.5%, compared to 5.5-6.5% earlier. The older range was initially recommended by the Bimal Jalan committee back in 2019. 

To be sure, CRB is a proportion of RBI’s profits that acts as a buffer against bad loans, falling asset values, staff costs or surprise economic shocks. The surplus that remains after gets transferred to the government.

Also read | Centre to hold FY26 fiscal deficit at 4.4% despite global headwinds, Pakistan tensions

A fiscal leeway

The RBI board also revised the ECF (economic capital framework), which stipulates that the risk provisioning under the CRB be maintained within a range of 7.5-4.5% of the central bank’s balance sheet. This range was earlier 6.5-5.5%.

“We believe that the revision in ECF, with a hike in buffers to 6% +/-1.5%, is very prudent during times of global and domestic economic uncertainty,” said Kanika Pasricha, chief economic adviser at Union Bank of India. “With the number higher versus budgeted by ~ ₹60,000 crore (0.15% of GDP), the RBI has managed to provide fiscal leeway to the central government.” 

During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the covid-19 pandemic, the RBI’s board had decided to maintain the CRB at 5.5% of its balance sheet size to support growth and overall economic activity. The CRB was increased to 6% for FY23 and to 6.5% for FY24.

Last week, RBI’s central board had reviewed the ECF as per the Jalan committee’s recommendations of reviewing the framework every five years.

The widening of the risk buffers provides flexibility to the RBI's board, considering the prevailing macroeconomic and other factors, and also to ensure smoothening of the surplus transfer to the government, according to the RBI statement.

Also read | Ajit Ranade: RBI’s increasing fiscal support deserves a closer look