The Reserve Bank of India (RBI) on May 22 approved a Rs. 2.11 lakh crore dividend payout to the central government for 2023-24, more than double the amount it paid for the previous 2022-23 financial year. The dividend payout was Rs. 87,416 crore for 2022-23.
Key points
- The decision was taken at the 608th meeting of the Central Board of Directors of the Reserve Bank of India held under the chairmanship of RBI Governor Shaktikanta Das.
- The Contingent Risk Buffer (CRB) was increased to 6% for FY 2023-24. The CRB is the country’s savings for a ‘rainy day’ (a financial stability crisis) which has been consciously maintained with the RBI in view of its role as Lender of Last Resort (LoLR).
- It is the component of the RBI’s economic capital required to cover its monetary and financial stability, credit and operational risks.
- A rainy day fund is a dedicated cash reserve set aside to cover unexpected expenses.
- The higher payout will help the government in managing the fiscal deficit; it can use the additional amount for spending or reduce the fiscal deficit by cutting gross borrowing.
- Under the RBI Act, 1934, the central bank is required to pay the government its surplus after making provisions for bad and doubtful debts, depreciation in assets and, contribution to staff and superannuation fund among others.
- According to some experts, an increase in the revenue of the RBI from the variable repo rate (VRR) auctions conducted through the previous year to provide banks funding support amid tight liquidity conditions.
- The revaluation gains on forex reserves, higher interest rates on domestic and foreign securities and significantly higher gross sales of foreign exchange can also be attributed to the RBI’s higher dividend to the government.
- The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others.
- The rupee’s depreciation against the dollar also weighs on the surplus transfer.
