MODI Government to receive 1 Lakh Crore as Dividend

The Reserve Bank of India (RBI) is poised to transfer a substantial dividend, potentially around Rs 1 lakh crore, to the government, a notable increase from last year’s payout, as reported.

Recently, the RBI announced a significant reduction in the government’s borrowing through Treasury Bills, slashing the expected funds by Rs 60,000 crore. Additionally, the central bank is facilitating an operation for the government to repay Rs 60,000 crore of earlier borrowings ahead of schedule. These measures indicate a concerted effort to utilize dormant government funds, constrained by election-related spending limitations, hinting at an imminent improvement in the Centre’s financial position.

The RBI is expected to announce the transfer of its surplus funds by late May. Kanika Pasricha, chief economic advisor at Union Bank of India, highlighted in a research report the anticipation of a surplus transfer of Rs 1 lakh crore to the government for FY25.

Analysts, basing their assessments on the RBI’s balance sheet, support the expectation of a larger surplus transfer compared to last year’s Rs 87,416 crore. A Prasanna, head of research at ICICI Securities Primary Dealership, estimated a surplus (before provisions) of Rs 3.4 lakh crore, with provisions amounting to Rs 2.2 lakh crore, potentially leaving a dividend of Rs 1.2 lakh crore.

Prasanna also emphasized that this sizable dividend would likely coincide with an increase in the RBI’s core capital ratio, bolstering the central bank’s balance sheet.

A significant contributing factor to this expected surplus is the sharp increase in interest earnings from the RBI’s foreign exchange assets, driven by aggressive rate hikes by the US Federal Reserve in recent years.

Despite lower gross sales and purchases of US dollars in FY24 compared to FY23, analysts anticipate a substantial boost in the RBI’s earnings from its foreign assets.