The Reserve Bank of India (RBI), last week, has transferred the bumper Rs 2.11 trillion to the Centre, and experts believed that this bonanza should help ease sovereign and corporate yield curves, and the near-term bull-steepening of the Gsec curve is possible post-elections.
“The Board has approved the transfer of Rs 2,10,874 crore as surplus to the Central Government for the accounting year 2023-24,” the RBI said in a statement last week.
Notably, as per the interim budget estimates for fiscal year 2024/25, the Union Government had budgeted for a dividend of Rs 1.02 trillion from the central bank, state-run banks and other financial institutions.
Lead Economist at Emkay Global, Madhavi Arora said that the implied additional fiscal buffer of nearly Rs 1.3trillion (0.4% of GDP) could cushion against any revenue slippages, allow further fiscal correction, and see higher capex/revex spend.
What led to surge in the dividend?
The Economist believed that the bumper RBI dividend of Rs 2.1trillion was mainly due to higher foreign interest income and lower provisions amid lower MTM loss on foreign and domestic securities, while gains from gross FX sales remain high (USD 836 bn).
“Higher total income has also helped RBI increase the Contingent Risk Buffer further to 6.5% of B/S, even as economic capital declined to 22.5% of B/S, due to CGRA staying flat while B/S grew 11% YoY,” she said.
The impact
The Economist said, “We see net system liquidity surplus averaging ~0.5-0.8% of NDTL ahead vs current deficit of ~0.7% of NDTL.”
She further said that the Financial Year 2025 may also see stable/high dividend, with higher rates and positive outlook for gold, while possible Fed rate cuts, or its expectations, in early CY25 (+ its impact on domestic yields) would further reduce MTM losses (or turn them into profits), keeping provisions low.
The ensuing liquidity surplus may not disturb the RBI as much, assuming inflation stays on course and global rates remain soft, she added.
RBI annual report on the Rs 2.11 lakh crore surplus figure
The RBI annual report also gave a clarity into the actual calculations that resulted in the Rs 2.11 lakh crore surplus figure.
It said that the income in FY24 rose around 17% year-on-year due to a significant rise in interest income from foreign securities.
Interest income from foreign securities surged to Rs 65,327.93 crore this fiscal as compared to Rs 43,649.26 crore in FY23, the report added.
RBI’s foreign currency assets (FCA) also rose around 14%, and the income from foreign sources rose around 23% on a year-on-year basis to Rs 1.8 lakh crore, it said.
The income from domestic sources saw a more modest rise of around 6% to Rs 88,100 crore.
