RBI Surplus to Provide Government with Record Rs 3.5 Lakh Crore

According to economists and analysts, the Reserve Bank of India (RBI) may give a record dividend of around Rs 2.5 lakh crore to the government for the financial year 2024-25 (FY25). This would surpass last year's payment of Rs 2.1 lakh crore, reducing the government's need to borrow more this year.

If the actual payment exceeds Rs 2.5 lakh crore, it will be about 20% higher than last year's dividend, easily surpassing the government's budget estimate of Rs 2.2 lakh crore. Analysts say this will provide significant support to the central government's finances, especially in a year when there is an expectation of higher spending to boost the economy.

The expected surge in the dividend is due to two main reasons. First, to stabilize the rupee, the RBI sold a significant amount of US dollars in the market, generating income. Second, the central bank earned interest by providing funds to banks through its liquidity operations.

A foreign banking group believes the dividend could reach Rs 3.5 lakh crore, the highest ever provided by the RBI to the government. The RBI is expected to announce the exact amount by the end of May. Last year's payment surprised many as it was twice as large as expected.

These funds are crucial for the government as they help reduce the fiscal deficit—the gap between the government's income and expenditure. When the government receives more funds via dividend, it reduces the need to borrow from the market. This also helps reduce bond yields and improves liquidity in the banking system.

MK Global Financial Services' chief economist Madhavi Arora told the Economic Times, "This dividend gives the government an opportunity to fix its fiscal deficit, especially when tax collections have declined due to the economic slowdown. Additionally, this will inject significant liquidity, which is beneficial for the bond market, reducing yields on short-term bonds."

MK Global expects the final dividend to be between Rs 2.8 lakh crore and Rs 3 lakh crore.

Other analysts agree that a bumper dividend is highly likely. Dheeraj Nim, economist and forex strategist at ANZ Banking Group, said, "The RBI has sold a significant amount of dollars to support the rupee and maintain exchange rate stability. Moreover, tight system liquidity prompted the RBI to lend funds to banks, which contributed to its interest income. Therefore, the dividend payment for FY25 is likely to be large." Nim expects the transfer to be between Rs 2.5 lakh crore and Rs 3.5 lakh crore.

Analysts have examined the RBI's balance sheet and found that the central bank earned more this year compared to last. Besides dollar sales and interest income, RBI's investment portfolio gains also contributed to the surplus.

This surplus transfer comes at a time when the government needs funds to continue driving economic growth, especially as there are signs of a slowdown in some sectors. A higher-than-expected dividend will give the center more room to spend without significantly increasing its fiscal deficit.

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