Reserve Bank of India (RBI) Dividend Transfer

Key Decisions and Financial Transfers

• The RBI has approved a transfer of ₹2,68,590.07 crore as surplus to the Union government for the accounting year 2024-25.
• This transfer marks a 27% increase from the previous year's ₹2,10,874 crore dividend.
• The Contingent Risk Buffer (CRB) has been increased to 7.50% based on the revised Economic Capital Framework (ECF) and macroeconomic assessments.

Historical Context

• During 2018-19 to 2021-22, the CRB was maintained at 5.50% due to challenging macroeconomic conditions and the COVID-19 pandemic.
• The CRB increased to 6% in FY 2022-23 and to 6.50% in FY 2023-24 before the current increase.

Additional Insights

• The transferable surplus was decided based on the revised ECF, stipulating CRB within a 4.50%-7.50% range.
• It has been noted that without the CRB increase, the dividend could have exceeded Rs. 3.5 trillion.
• The Union Budget for 2025-26 estimated a dividend income of Rs. 2.56 lakh crore from the RBI and public financial institutions.

Market Implications

• The dividend impacts fiscal deficit, potentially easing it by 20 bps to 4.2% of GDP.
• The surplus is attributed to gross dollar sales, foreign exchange gains, and interest income.
• In September 2024, foreign exchange reserves reached $704 billion, with significant sales to stabilize the currency.

Economic Perspectives

• The surplus as a boost to non-tax revenue, aiding fiscal balance despite potential tax or disinvestment shortfalls.
• The fiscal deficit-to-GDP ratio is projected to be contained at 4.4% in FY2026.
• The dividend is lower than market expectations due to revised contingent liquidity buffers.