RBI DIVIDEND: How Much Is Too Much


Here is a quick look at how much dividend the Reserve Bank of India (RBI) has been paying to the government since 2008, the year of the global financial crisis (See the chart below).

From 2019, it has been following the Bimal Jalan Committee guidelines on keeping aside funds for unexpected risks –Contingent Risk Buffer– while paying dividend.

The RBI aligned its financial year with the rest of the financial system relatively recently. For the Indian central bank FY 2019-20 ended on June 30, 2020 and FY year 2020-21 had begun on July 1, 2020 but ended on March 31, 2021. From then onwards, all financial year begins on April 01 every year.

Breaking away with nearly eight decades of practice, the RBI in August 2020 decided to follow April-March calendar, and not July-June calendar, as its accounting year. It was done to align its accounting year with that of the central government.

The decision was taken at the RBI’s central board of directors’ meeting. Following this, the RBI does not need to transfer an interim dividend to the central government — a practice which was adopted by the National Democratic Alliance (NDA) government at the Centre.

What are the sources of income for the RBI? Its annual report explains everything. In the past, it had sold its stake and the State Bank of India and a few other entities and that generated extraordinary income.

As far as the latest accounting year is concerned, there have been three main sources of the RBI’s income. Higher interest rate in the US helped it generate a handsome earning from its US Treasury Bill assets. It has earned from lending money to the banks in the liquidity-tight domestic market. Essentially, it has earned handsome interest income both from from domestic securities and foreign securities. And, the third source, is foreign exchange transactions — the buy-sell swaps.

An IDFC First Bank Ltd report says, earnings on foreign exchange transactions are expected to be lower with gross dollar sales at $153 billion in FY2024 versus $213 billion in FY2023. According to the report, the historical cost of dollar purchase is tracking at 65, substantially below the current spot rate (around 82.20). Hence, despite lower quantum of gross dollar sales in FY2024, revenues from foreign exchange transactions will be substantial, though lower than FY2023.

The latest dividend is far higher than what analysts had expected. The Interim Budget in February also estimated it far lower. The higher dividend represents additional revenue for the government to the extent of 0.4 per cent of GDP. Let’s wait and what how this gets used by the government.


Year (Rs crore)

2008   15,011

2009    25,009

2010    18,759

2011     15,009

2012     16,010

2013     33,110

2014     52,679

2015     65,896

2016     65,876

2017    30,659

2018     50,000

2019     1,76,051

2020     57,128

2021     99,122

2022     30,307

2023     87,416

2024     2,10,874

The author of this piece writes Banker’s Trust every Monday in Business Standard.

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Twitter: TamalBandyo

Website: https://bankerstrust.in

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