RBI is likely to talk about Dividend Payments this week

While there has been no formal announcement coming from the RBI, it is estimated that the board of the RBI would meet later this week. According to report appearing on Bloomberg, the Reserve Bank of India board was likely to meet on Friday, 19th May, and during the meeting it is expected to consider a dividend payout to the government. It may be recollected that each year the RBI declares a dividend to the government which is also called the surplus transfer done to the government. The  Bimal Jalan Committee appointed a couple of years back the broad guidelines for distribution of dividends by the RBI to the government of India. However, there is no provision for minimum dividend to be paid to the government by the RBI and it is entirely based on the judgement of the board of RBI.

In the previous year, the total dividend paid by the RBI to the government had fallen to a low of ₹30,000 crore. That is because, the RBI had opted to transfer nearly ₹115,000 crore to the contingency reserve to provide for the depreciation in the investments of global debt held by the RBI, which would have seen depletion in market value on account of a spike in interest rates globally. The meeting of the board over this week end is expected to be conducted in Mumbai. The normal process is that there can be no formal statement on such matters till the RBI board meet concludes and the RBI governor or senior official puts out the details. The standard process is that the RBI Board typically reviews its finances and how much it can transfer to the government during its May board meeting.

In the Union Budget presented in February 2023, the government had projected total income of ₹48,000 crore to come in from dividends from the RBI and from other public sector banks. However, that looks like a very conservative estimate considering that the RBI is sitting on a lot of surplus this year from dollar selling. The RBI had been consistently selling dollars through the previous year to ensure that the rupee does not weaken beyond a point. This is done by neutralizing the dollar value by infusing more dollars into the market. That had led to a marked fall in the currency reserves but had also resulted in revenues from selling the dollars. That is likely to be paid out to the government as dividends this year.

While the government has budgeted total band (PSU Banks plus RBI dividend) at ₹48,000 crore, the research arms of the large banks are estimating that the dividend from the RBI this year could be more than ₹100,000 crore. That would be a real windfall for the government as lower economic activity and weak exports are likely to impose revenue limits on collections this year. Also, the government may go slow on the divestment front after the not too pleasant experience of LIC. Some like Standard Chartered are even pegging the dividends to go as  high as ₹200,000 crore in a best case scenario, which would be a real bonanza for the government of India. We have to await the outcome of the RBI board meet but the RBI dividend is surely likely to be much more than the budget estimates of a conservative ₹48,000 crore.