Will RBI's Dividend to Government Exceed Record Rs 2.5 Lakh Crore in 2025-26?

Mumbai, May 16 (NationPress) Economists predict that the Reserve Bank of India (RBI) will deliver a dividend to the government exceeding a record-breaking Rs 2.5 lakh crore this year. This surge in the central bank's earnings, attributed to the sale of dollars aimed at stabilizing the rupee amid significant depreciation during 2024-25, is set to be transferred to the government as a dividend in 2025-26.

The previous highest dividend given to the government was Rs 2.1 lakh crore during 2024-25, which played a crucial role in maintaining the fiscal deficit while enabling the Finance Ministry to proceed with substantial infrastructure projects and social welfare initiatives aimed at supporting the underprivileged.

This marks a significant increase from the Rs 87,416 crore transferred to the government in 2023-24 for profits generated in 2022-23. Expectations for another substantial boost through the RBI dividend in the current financial year are also high.

“The RBI's revenue from forex transactions is anticipated to be substantial, particularly due to the central bank's actions to stabilize rupee volatility through aggressive dollar purchases earlier in fiscal 2025 and the disparity between the current and historical exchange rates. Additionally, interest income from government securities and earnings from loans to banks during previous liquidity constraints will contribute. This transfer could reach an unprecedented high between Rs 2.5-2.7 lakh crore this year,” remarked Radhika Rao, senior economist at DBS Bank.

According to Gaura Sengupta, chief economist at IDFC First Bank, earnings from forex transactions are projected to be significant, with gross dollar sales amounting to $371.6 billion in fiscal 2025 as of February, compared to $153 billion in fiscal 2024. She estimates the RBI dividend between Rs 2.6 lakh crore and Rs 3 lakh crore, as reported by NDTV Profit.

This increased dividend is expected to create fiscal leeway of 0.1 to 0.2 percent of GDP, according to Sengupta. Coupled with a higher-than-anticipated RBI surplus and savings in several expenditure areas, the central government is well-positioned to address growth slowdown risks and any unforeseen spending needs.

In addition to reducing the fiscal deficit, the RBI dividend will provide a crucial liquidity boost to the banking system this financial year. This will facilitate lower interest rates, enabling banks to offer more loans to businesses and consumers, thereby stimulating economic development and job creation.

The RBI board convened on Thursday to evaluate the economic capital framework, which serves as the basis for determining the surplus transfer or dividend amount to the government. This meeting precedes the decision and approval of the surplus transfer to the government.

The surplus that can be transferred is determined based on the ECF adopted by the Reserve Bank on August 26, 2019, following the recommendations of the Bimal Jalan-led Expert Committee reviewing the existing Economic Capital Framework.

The Committee recommended that the risk provisioning under the Contingent Risk Buffer (CRB) be maintained within a range of 6.5 to 5.5 percent of the RBI's balance sheet.