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RBI Likely to Transfer Rs 1,00,000 Crores to Government


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The Reserve Bank of India (RBI) is expected to transfer around ₹1000 billion (Rs 1,00,000 Crores) to the government in the fiscal year 2025 (FY25), according to a report by Union Bank of India. This projection represents a slight increase from the ₹874 billion transferred in the previous fiscal year.

The government has budgeted the FY25 dividend for RBI and PSU banks & financial institutions at ₹1020 billion, compared to ₹1044 billion in FY24. Analysts predict a potential positive surprise, similar to the previous fiscal year when the initial budget estimate for dividends was significantly lower at ₹480 billion. Despite various factors influencing RBI’s dividend calculation, such as interest earnings and foreign exchange gains, analysts expect strong dividend figures to continue.

The majority of RBI’s balance sheet, approximately 70 percent, consists of foreign currency assets, with another 20 percent in domestic government bonds. Interest earnings from these securities are expected to range from ₹1.5-1.7 trillion. Additionally, interest from liquidity operations has increased RBI’s earnings, particularly as the banking system returned to a deficit mode from September 2023.

While income gains of RBI from foreign exchange sales decreased slightly due to lower sales volumes, they are expected to remain substantial despite a rise in the weighted average cost of reserves. A decline in provisions likely contributed to boosting RBI’s dividend. Provisions for reserves, as per the Economic Capital Framework outlined by the Jalan committee, saw a rise in the contingency fund provision due to increased balance sheet growth.

The impact of the RBI dividend announcement on markets may be limited in the near term, especially with ongoing elections potentially delaying government spending. However, if the surplus balance is utilized for activities like G-Sec buybacks, it could support the shorter end of the G-Sec curve. Overall, analysts maintain a positive outlook on longer-duration G-Secs due to favorable demand-supply dynamics.

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