RBI dividend: Fiscal boost for the government of record £ 2.69 trillion payout for FY25 | Mint

Mumbai: The Central Council of the Reserve Bank of India (RBI) has decided to transfer a record of £ 2.69 trillion as a surplus to the government for the financial year 2024-25, the central bank said in a statement on Friday. The payout is 27% higher than the £ 2.1 trillion dividend of FY24. According to economists, the marginal increase in dividend payout will compensate a fog in tax or analysis receipts or higher than budget expenditure in the financial year. The higher dividend is likely to be due to earnings on foreign exchange transactions. RBI’s gross dollar sales rose from $ 153 billion in FY24 in FY25 to $ 399 billion. However, bond traders are disappointed because the market expects a surplus of £ 3 billion. The yields have increased by 12 basis points over the past ten days in the hope of higher surplus. “It’s a disappointment for the market, and we can expect some profit discussion after the steep rally we’ve seen over the past ten days,” said Murthy Nagarajan, head of income at Tata Asset Management. While the FY25 payout is slightly higher than the government’s budgeted estimate of £ 2.56 trillion, it had a lack of analysts of £ 2.7-4 billion. The lower-than-expected transfer follows a change in the range of contingency risk buffer (CRB) that can maintain the central bank to 6% +/- 1.5%, compared to 5.5-6.5% earlier. The older series was initially recommended by the Bimal Jalan Committee in 2019. To be sure, CRB is a part of the RBI’s profits that act as a buffer against bad loans, falling asset values, staff costs or economic shocks. The remaining surplus is transferred to the government. A fiscal space The RBI board also revised the ECF (economic capital framework), which states that the risk provision under the CRB is maintained within a range of 7.5-4.5% of the balance sheet of the central bank. This series used to be 6.5-5.5%. “We believe that the revision in ECF, with an increase in buffers up to 6% +/- 1.5%, is very wise in times of global and domestic economic uncertainty,” said Kanika Pasricha, chief economic adviser of Union Bank of India. “With the number higher versus budgeted by £ 60,000 crore (0.15% of GDP), the RBI managed to provide the central government fiscal space.” During the accounting years 2018-19 to 2021-22, due to the prevailing macroeconomic conditions and the onslaught of the Covid-19 pandemic, the RBI board decided to maintain the CRB at 5.5% of its balance sheet size to support growth and overall economic activity. The CRB was increased to 6% for FY23 and up to 6.5% for FY24. Last week, the Central Council of RBI revised the ECF according to the Jalan Committee recommendations to review the framework every five years. The expansion of the risk bluffers provides flexibility to the RBI’s board, taking into account the prevailing macro -economic and other factors, and also to kill the surplus transfer to the government, according to the RBI statement.