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Business News/ News / India/  RBI dividend hits 87,416 cr, 82% above budget estimate
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RBI dividend hits ₹87,416 cr, 82% above budget estimate

Central bank’s board also decided to raise contingency risk buffer to 6% from last year’s 5.5%

The Budget estimated an aggregate dividend of ₹48,000 crore from RBI and public sector lenders. mintPremium
The Budget estimated an aggregate dividend of 48,000 crore from RBI and public sector lenders. mint

Mumbai: The Reserve Bank of India’s (RBI) central board on Friday approved the transfer of 87,416 crore as surplus to the government for FY23, surpassing the budget estimate by 82%.

The union budget estimated an aggregate dividend of 48,000 crore from the RBI and public sector lenders. The large surplus transfer by the central bank would help the government manage its fiscal math, economists said.

Last year, the central bank transferred a surplus of 30,307 crore to the Centre.

Experts estimated a high dividend payout in FY23 on the back of bumper profits from forex sales and higher interest income. On Friday, the RBI board also decided to raise the contingency risk buffer to 6% from 5.5% last year.

RBI data
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RBI data

Some analysts had estimated a larger surplus transfer of 80,000-95,000 crore. Madhavi Arora, lead economist, Emkay Global Financial Services, said the fact that the RBI increased the contingency buffer as a percentage of the balance sheet from 5.5 to 6% probably led to the dividend remaining at the lower end of the expected range.

Arora said that while the RBI has made good profits on the sale of foreign exchange, it has encountered losses on its mark-to-market books and foreign securities, leading to higher provisioning.

From a fiscal perspective, the dividend represents additional revenue of 0.2% of the gross domestic product, said Gaura Sengupta, India economist at IDFC First Bank.

“However, it may be too early to say with certainty that FY24 fiscal deficit will undershoot the 5.9% GDP target," said Sengupta.

She said the sharp reduction in inflation implies that FY24 nominal GDP growth could be lower than the 10.9% figure assumed in the Union Budget.

Others said that a higher RBI dividend is not the only large payout that will aid the government, as state-run banks have also had a good year. “Add to this the possible higher dividend payments by the oil marketing companies (OMCs), and the situation appears quite comfortable from a market perspective as this will not lead to higher market borrowings," said Madan Sabnavis, chief economist at Bank of Baroda.

Meanwhile, the RBI said on Friday that its board also reviewed the global and domestic economic situation and associated challenges, including the impact of current global geopolitical developments.“The board also discussed the working of the RBI during the year April 2022 to March 2023 and approved the annual report and accounts of the Reserve Bank for the accounting year 2022-23," it said in a statement.

In 2019, the RBI had transferred 1.76 trillion to the government. The transfer comprised 1.23 trillion of surplus for 2018-19 and 52,637 crore of excess provisions identified as per the revised Economic Capital Framework.

This was in line with the recommendations of the committee under former central bank governor Bimal Jalan.

The committee had recommended a surplus distribution policy, which targets the level of realized equity to be maintained by the RBI within the overall level of its economic capital.

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Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Updated: 20 May 2023, 01:11 AM IST
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