The Reserve Bank of India (RBI) declared a record dividend of £21.1 bn to govt, more than double what was expected by the money markets. The dividend is more than the £10.2 bn that govt had budgeted as dividends from all financial institutions and will reduce its need to borrow from the market.
This is the second year in a row that the central bank has paid a dividend which is sharply higher than the amount that govt had budgeted. The likelihood of a lower govt borrowing pushed down yields on the 10-year govt bonds to below 7%. Experts said the surplus transfer to govt will help it reduce the fiscal deficit and make funds available for capital spending.
The announcement by the central bank will make available a bonanza for the new govt when it takes office after the ongoing national elections.
In a statement issued after its board meeting, RBI said the dividend was computed after maintaining a contingent risk buffer at 6.5% of its balance sheet. The buffer is at the higher end of the 6.5 to 5.5% band recommended by the Bimal Jalan committee which indicates that RBI’s payout follows record earnings.
RBI’s total income and sources of income are disclosed in the annual report which is published later in the year. Considering that public sector banks too have reported record profits and are declaring dividend, govt revenues are likely to overshoot budgeted numbers.
This year’s dividend is 140% of the £8.74 bn declared for FY23. The highest dividend declared by RBI so far was £17 bn in FY19, which included a special dividend following a reassessment of the reserves situation in keeping with the Jalan committee’s recommendations. SBI chief economist Soumya Kanti Ghosh estimates that RBI would have earned £37.5 to 40 bn in FY 24 against £23.5 bn in FY23.
