The Reserve Bank approved an INR 2.11 lakh crore dividend payout to the central government for 2023-24, more than double the amount it paid for the previous 2022-23 financial year. The decision was taken at the 608th meeting of the Central Board of Directors of the Reserve Bank of India held under the chairmanship of Governor Shaktikanta Das.

“During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the Covid-19 pandemic, the Board had decided to maintain the CRB (Contingent Risk Buffer) at 5.50% of the Reserve Bank’s Balance Sheet size to support growth and overall economic activity. With the revival in economic growth in FY 2022-23, the CRB was increased to 6.00%. As the economy remains robust and resilient, the Board has decided to increase the CRB to 6.50% for FY 2023-24. The Board thereafter approved the transfer of INR 2,10,874 crore as surplus to the Central Government for the accounting year 2023-24," said the RBI press release.

The Committee had recommended that the risk provisioning under the CRB be maintained within a range of 6.5 to 5.5% of the RBI’s balance sheet, it added.

During the 608th Meeting of the Central Board held in Mumbai, the board deliberated on the global and domestic economic scenario, including risks to the outlook. The board decided to transfer a surplus of INR 2,10,874 crore.

Theoretically, a higher dividend would help the Centre hit its fiscal deficit target of 5.1% of GDP for FY25. The newly elected government would also have a higher amount to spend.

Each year, the RBI transfers a certain amount to the central government through the surplus income it generates from investments, fluctuations in the valuation of its dollar reserves, and revenue earned from currency printing fees.

The meeting was attended by Deputy Governors Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar, Swaminathan J. and other Directors of the Central Board – Satish K. Marathe, Revathy Iyer, Anand Gopal Mahindra, Venu Srinivasan, Pankaj Ramanbhai Patel and Ravindra H. Dholakia – attended the meeting, the release said.

RBI also said the meeting was also attended by Ajay Seth, Secretary of, the Department of Economic Affairs and Vivek Joshi, Secretary of, the Department of Financial Services.

One of the significant factors leading to a substantial surplus transfer is the notable rise in interest earnings from the RBI's foreign exchange assets, which has been driven by the US Federal Reserve's aggressive interest rate hikes in recent years. The nation's benchmark 10-year bond yield dropped 4 bps to 7.00% following this announcement.

Earlier reports had suggested that the RBI would approve a dividend of over INR 1 lakh crore for the government for FY24. However, the final amount approved is significantly higher than expert predictions. This surplus transfer will not only bolster the government's finances but also assist in meeting its budget deficit target.

Article Source – PTI, RBI (Press Release)