Centre may get around
₹1 lakh crore in RBI dividend
RBI
deputy governor Recent actions by the Reserve Bank of India (RBI) suggest that
it may transfer a higher dividend possibly in the region of ₹1 lakh crore
to the government than last year, giving a potential boost to New Delhi's
finances.
Last
week, the RBI announced a steep cut in the government's borrowing through
Treasury Bills, reducing the amount of funds that the Centre would have
garnered through these short-term instruments by ₹60,000 crore.
The
central bank also took some measures to ensure greater success of an upcoming
operation where the government plans to prematurely pay back ₹60,000
crore of earlier borrowings.
Both these actions, which seek to
utilise government funds that are currently sitting idle due to
election-related constraints on spending, also hint that the Centre's finances
may soon be handsomely replenished.
The RBI, which is the government's debt
manager, is likely to announce the transfer of its surplus funds to the
government in late May.
"We expect the RBI to transfer a
surplus of INR 1,000 billion (₹1 lakh crore) to the government in FY25
while there are many moving parts in the RBI dividend calculation, our
assessment shows a likely repeat of a strong dividend number," Union Bank
of India's chief economic advisor, Kanika Pasricha, recently said in a research
note.
Earnings from Foreign Assets
Calculations conducted by analysts based
on public information about the RBI's balance sheet make a case for the central
bank to surpass the surplus transfer of ₹87,416 crore that was given to
the Centre last year.
"Totalling up all the operating
expenses and subtracting them from total income, we arrive at a surplus (before
provisions) of ₹3.4 trillion (₹3.4 lakh crore). Once we account for
provisions of ₹2.2 trillion, that leaves us with a dividend of ₹1.2
trillion," A Prasanna, head of research at ICICI Securities Primary
Dealership, recently wrote in a note to clients. "Such a large dividend is
likely to be paired with the maximum permissible rise in (the central bank's)
core capital ratio as well, thereby strengthening RBI's balance sheet for a
rainy day."
Among the key factors that could
contribute to a large surplus transfer is a sharp increase in interest that the
RBI would have earned through its foreign exchange assets, amid aggressive rate
increases by the US Federal Reserve over the last couple of years.
Further, while the RBI's gross sales and
purchases of US dollars were lower in FY24 than FY23 a year when the central
bank intervened heavily in markets to shield the rupee from excessive
volatility analysts still expect a hefty boost to the central bank's earnings
from foreign assets.
www.economictimes.indiatimes.com dt. 20-05-2024