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The Reserve Bank of India’s (RBI’s) central board met on Wednesday and decided to transfer a record surplus of Rs 2.11 trillion to the government for 2023-24 (FY24) even after increasing the contingent buffer at the peak level of
6.5 per cent.
This amount is more than double the Centre’s budgeted figure for dividends from the central bank and other public-sector undertakings (PSUs). The RBI had transferred a surplus of Rs 87,416 crore in FY23.
In FY19, after the new economic capital framework (ECF) was adopted as per the Bimal Jalan Committee suggestion, the RBI had transferred a surplus of Rs 1.76 trillion. The ECF devised a method to determine how much surplus the central bank should transfer to the government.
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Between FY19 and FY22, the RBI maintained the contingent risk buffer (CRB) of 5.5 per cent of its balance sheet due to macroeconomic challenges amid a once-in-a-century pandemic and “to support growth and overall economic activity”, and 6 per cent in FY23.
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In FY24, it decided to increase the buffer to 6.5 per cent, the higher end of the Jalan Committee proposed range of 5.5-6.5 per cent of the RBI’s balance sheet.
“As the economy remains robust and resilient, the board has decided to increase the CRB to 6.5 per cent for FY24,” the central bank said.
Finance Secretary T V Somanathan told CNBC TV18 that the RBI’s move was good for the fiscal position. “Cash will fluctuate depending on expense, can’t say how cash will be managed but I can tell you that this dividend is good for the revenue of the government, for the fiscal position of the government,” he told the news channel.
According to economists, the larger surplus was due to higher income in FY24, both from domestic and foreign assets, which increased its profit.
“The dividend (surplus) payout is not just a function of the RBI’s profits, but also of capital provisions as per the ECF adopted in 2019,” said Shreya Sodhani, regional economist, Barclays.
“We had noted earlier that the provisioning from income to meet the minimum regulatory requirement was small in FY24, despite the 11.4 per cent growth in the balance sheet. This was because the RBI had already maintained a larger-than-required contingency fund in FY23 (at 6 per cent),
resulting in very little profits being set aside as capital for meeting the capital adequacy norms for FY24,” Sodhani said.
“The amount of Rs 2.11 trillion is well above the budgeted figure of Rs 1.5 trillion in the Interim Budget for FY25 under dividends and profits, which includes dividends from PSUs,” said Aditi Nayar, chief economist, ICRA.
According to Nayar, the higher-than-budgeted RBI surplus transfer would help to boost the Government of India's resource envelope in FY25, allowing for enhanced expenditures or a sharper fiscal consolidation than what was announced during the Interim Budget for FY25.
“Increasing the funds available for capex would certainly boost the quality of the fiscal deficit. However, the additional spending may be difficult to incur within the eight-odd months left after the Final Budget is presented and approved by Parliament,” Nayar said.
The board meeting, chaired by Governor Shaktikanta Das, included all four deputy governors, government nominees, and other members.
Mahindra Group Chairman Anand Mahindra, who attended the board meeting, posted on X, saying: “It is important to note that this record amount was declared after increasing the contingency risk buffer to 6.5 per cent from 6 per cent.”
The RBI board reviewed the global and domestic economic scenario, including risks to the outlook. The board also discussed the RBI’s working during FY24 and approved the Annual Report and Financial Statements for the financial year.
