Delhi News

RBI dividend to Centre slashed by 70% in FY22

MUMBAI: The Reserve Bank of India board on Friday approved a dividend of Rs 30,307 crore to the government for 2021-22, marking a nearly 70% decline in the payout from last year’s Rs 99,122 crore.
The lower dividend comes on the back of a lower realisation from the disinvestment of the government’s shares in LIC. Over the last few years, the RBI’s large surplus transfers have helped the government meet its higher spending requirements. While the Centre will see an increase in expenditure commitments during the current financial year too as subsidies are projected to rise, it will have to depend on tax revenues to bridge the gap.
There have been multiple factors driving down the surplus this year. A major cost for the RBI was the interest that is paid to banks on money that they parked with it under the liquidity adjustment facility. The central bank has been paying thousands of crores to banks after impounding the surplus liquidity it had pumped into banks in the wake of the Covid pandemic.
The RBI has also taken a hit on its foreign investment as the value of debt securities fell due to the rise in interest rates. It has also had to spend over $40 billion of its reserves to stem volatility in the market and will need to set aside more money to replenish reserves.
“The board approved the transfer of Rs 30,307 crore as surplus to the central government for the accounting year 2021-22 while deciding to maintain the contingency risk buffer at 5.50%,” the RBI said in a statement.
“For the year, the government is targeting around Rs 74,000 crore as dividend from RBI, public sector banks and other financial institutions. This will mean that a large part of the profit of PSBs and FIs will have to be transferred to make good this number or else there will be a slippage,” said Madan Sabnavis, chief economist, Bank of Baroda.
Last year’s dividend of Rs 99,122 crore was higher than expected as it was for only nine months (July 2020 to March 2021). From FY21, the government had decided to align the RBI’s accounting year with the government’s financial year. Earlier, RBI had a July-June accounting year.
The RBI, in its release, said that the board also reviewed the current economic situation, global and domestic challenges and the impact of recent geopolitical developments. “The board also discussed the working of the RBI during the year April 2021-March 2022 and approved the annual report and accounts for the accounting year 2021-22,” the statement said.
Bankers do not rule out the possibility of another interim dividend. “The RBI’s earnings increase during market volatility. The dollars sold by the central bank during the current financial year, when the rupee breached 77 levels, would have earned it a large profit,” said a treasury head with a private bank.

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