The Reserve Bank of India (RBI) is expected to transfer a dividend of between Rs 85,000 crore and Rs 1 lakh crore to the government for FY25, driven by anticipated higher interest income from foreign securities, according to economists. The RBI’s board is meeting today to finalize the dividend payout.
Budgeted and Revised Estimates
The government has budgeted Rs 1.02 lakh crore as dividends from the RBI and state-run banks for 2024-25. This figure is 2.3% lower than the revised estimate of Rs 1.04 lakh crore for 2023-24. The substantial revision for the current year represents a 118% increase from the initial budget estimate of Rs 48,000 crore, following an unexpected dividend transfer of Rs 87,416 crore by the RBI in May 2023.
Expected Dividend Transfer
Gaura Sen Gupta, Chief Economist at IDFC First Bank, predicts the RBI’s dividend to range from Rs 75,000 crore to Rs 85,000 crore, slightly down from last year’s Rs 87,400 crore. This prediction is based on strong interest income from both foreign and rupee securities. Meanwhile, Kanika Pasricha, Chief Economic Advisor at Union Bank of India, forecasts a surplus transfer of Rs 1 lakh crore to the government in FY25.
Interest Earnings
The Union Bank of India reported on May 10 that 70% of the RBI’s balance sheet comprises foreign currency assets, with another 20% in domestic government bonds. The interest earnings from these holdings are projected to be significant, estimated at Rs 1.5-1.7 lakh crore. The report also noted that interest from liquidity operations bolstered the RBI’s earnings as the banking system shifted back into deficit mode from September 2023 after three years.
Factors Influencing Earnings
Interest income on G-Secs is expected to remain stable due to a decline in rupee securities holdings, resulting from open market operations (OMO) and G-Sec redemptions. Additionally, the rise in foreign exchange reserves was largely driven by FX purchases and revaluation gains.
Implications of Higher Dividend
A higher dividend from the RBI will enhance the government’s liquidity surplus and support future expenditure. However, in the short term, rupee liquidity may be strained due to FX interventions aimed at stabilizing USDINR volatility. Liquidity in the banking system is anticipated to improve in the second half of FY25, supported by increased capital inflows.
Market Impact
Experts believe the market impact of a higher dividend will be minimal. The ongoing Lok Sabha elections, with results expected on June 4, may delay government spending in the current financial year.
In conclusion, the RBI’s anticipated dividend payout will play a crucial role in shaping the government’s financial strategy for FY25, amidst broader economic and political dynamics.
