At Rs 87,416cr, RBI’s dividend to govt nearly 3x of last year
The Reserve Bank of India (RBI) has declared a dividend of Rs 87,416 crore to the government. This is nearly three times the Rs 30,307-crore dividend the central bank paid out in the previous financial year. It is also much higher than the Rs 48,000-crore dividend from banks estimated in the Budget.
Economists said that the higher dividend was a result of the volatility in the foreign exchange market, which enabled the RBI to book huge profits through the sale of dollars. Selling dollars has a double impact on RBI’s dividend-paying ability. While the sale of dollars at higher exchange rates than the purchase price generates profits, a decline in the size of the balance sheet reduces the need for provisions.
The government’s overall dividend income will be even higher considering that SBI has increased its dividend payout to Rs 11.3 per share as against Rs 7.1 last year. A higher dividend income will enable the government meet the fiscal deficit target of 5.9% of GDP. This will reduce pressure to raise market borrowing.
“As PSBs (public sector banks) have also reported very good profits and announced dividend, there will be higher inflows from this source too. Add to this possibly higher dividend payments by oil marketing companies and the situation appears quite comfortable, as this will not lead to higher market borrowings,” said Madan Sabnavis, chief economist at Bank of Baroda.
The RBI’s central board convened its 602nd meeting on Friday under the chairmanship of governor Shaktikanta Das. The meeting focused on evaluating the global and domestic economic landscape, taking into account associated challenges and potential impact of current geopolitical developments.
During the session, the board decided to maintain the contingency risk buffer at 6%. This is a reserve fund to absorb any unexpected losses or shocks arising in the future.