
The Reserve Bank of India’s (RBI) Central Board of Directors has given its approval to transfer a record-breaking amount of Rs 2.11 lakh crores as surplus to the Indian government for the financial year 2023-24. This announcement was made by the RBI in a statement on May 22, 2024. This surplus transfer is considered to be the highest ever yearly transfer made by the Indian central bank to the government.
The RBI stated that the surplus transfer is based on the Economic Capital Framework (ECF) adopted by the RBI on August 26, 2019, following the recommendations of the Bimal Jalan committee. The significant increase in the surplus amount can be attributed to higher income from the forex holdings of the central bank, among other factors.
Positive Implications for the Central Government
The dividend transfer for the fiscal year 2023-24, which will reflect in the government’s account in the fiscal year 2025, is significantly higher than what the government had initially expected. This higher-than-anticipated surplus transfer is welcome news for the central government as it will support their liquidity surplus and subsequent expenditure, according to experts.
Increase in Contingent Risk Buffer
In addition to the surplus transfer, the RBI also announced an increase in the Contingent Risk Buffer (CRB) to 6.50 percent for the fiscal year 2023-24. The Committee had previously recommended maintaining the risk provisioning within a range of 6.5 to 5.5 percent of the RBI’s balance sheet.
Due to prevailing macroeconomic conditions and the impact of the Covid-19 pandemic, the CRB had been maintained at 5.50 percent of the Reserve Bank’s balance sheet size during the accounting years 2018-19 to 2021-22 to support economic growth and overall activity. However, with the revival of economic growth in FY 2022-23 and the robust and resilient state of the economy, the CRB was increased to 6.00 percent. Now, for FY 2023-24, the CRB has been further raised to 6.50 percent, as stated by the RBI.
Budgeted Dividend Revenue and Surplus Expectations
The government had initially budgeted a dividend of Rs 1.02 lakh crore for the fiscal year 2024-25. However, at Rs 1.02 lakh crore, the budgeted dividend revenue for FY25 is 2.3 percent lower than the revised estimate of Rs 1.04 lakh crore for 2023-24.
It was expected that the RBI would transfer a surplus of Rs 85,000 crore to Rs 1 lakh crore to the government in the fiscal year 2025, based on the anticipation of higher interest income from foreign securities. However, the final figure has far exceeded these expectations. The approval for the dividend transfer was given during the 608th meeting of the Central Board of Directors of RBI.
Attendees of the Meeting
The meeting where these decisions were made was attended by several key individuals. Deputy Governors Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar, Swaminathan J., along with other Directors of the Central Board, including Satish K. Marathe, Revathy Iyer, Anand Gopal Mahindra, Venu Srinivasan, Pankaj Ramanbhai Patel, and Ravindra H. Dholakia, were present. The meeting was also attended by Ajay Seth, Secretary of the Department of Economic Affairs, and Vivek Joshi, Secretary of the Department of Financial Services, as mentioned in the release by the RBI.