RBI DIVIDEND: How Much Is Too Much
Tamal Bandyopadhyay
Consulting Editor, Business Standard & Senior Adviser, Jana Small Finance Bank. Linkedin Top Voice in 2015 & 2019
Here is a quick look at how much dividend the Reserve Bank of India (RBI) has been paying to the government since 2008, the year of the global financial crisis (See the chart below).
From 2019, it has been following the Bimal Jalan Committee guidelines on keeping aside funds for unexpected risks --Contingent Risk Buffer-- while paying dividend.
The RBI aligned its financial year with the rest of the financial system relatively recently. For the Indian central bank FY 2019-20 ended on June 30, 2020 and FY year 2020-21 had begun on July 1, 2020 but ended on March 31, 2021. From then onwards, all financial year begins on April 01 every year.
Breaking away with nearly eight decades of practice, the RBI in August 2020 decided to follow April-March calendar, and not July-June calendar, as its accounting year. It was done to align its accounting year with that of the central government.
The decision was taken at the RBI’s central board of directors’ meeting. Following this, the RBI does not need to transfer an interim dividend to the central government — a practice which was adopted by the National Democratic Alliance (NDA) government at the Centre.
What are the sources of income for the RBI? Its annual report explains everything. In the past, it had sold its stake and the State Bank of India and a few other entities and that generated extraordinary income.
As far as the latest accounting year is concerned, there have been three main sources of the RBI's income. Higher interest rate in the US helped it generate a handsome earning from its US Treasury Bill assets. It has earned from lending money to the banks in the liquidity-tight domestic market. Essentially, it has earned handsome interest income both from from domestic securities and foreign securities. And, the third source, is foreign exchange transactions -- the buy-sell swaps.
An IDFC First Bank Ltd report says, earnings on foreign exchange transactions are expected to be lower with gross dollar sales at $153 billion in FY2024 versus $213 billion in FY2023. According to the report, the historical cost of dollar purchase is tracking at 65, substantially below the current spot rate (around 82.20). Hence, despite lower quantum of gross dollar sales in FY2024, revenues from foreign exchange transactions will be substantial, though lower than FY2023.
The latest dividend is far higher than what analysts had expected. The Interim Budget in February also estimated it far lower. The higher dividend represents additional revenue for the government to the extent of 0.4 per cent of GDP. Let's wait and what how this gets used by the government.
RBI DIVIDEND PAYMENT SINCE 2008
Year (Rs crore)
2008?? 15,011
2009??? 25,009
2010??? 18,759
2011???? 15,009
2012???? 16,010
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2013???? 33,110
2014???? 52,679
2015???? 65,896
2016???? 65,876
2017??? 30,659
2018?? ? 50,000
2019?? ? 1,76,051
2020?? ? 57,128
2021?? ? 99,122
2022? ?? 30,307
2023? ?? 87,416
2024? ?? 2,10,874
The author of this piece writes Banker's Trust every Monday in Business Standard.
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Global Sanctions/AML(Advisor /CAMS/Corp.banking /Treasury Trainer and Consultant (ex. Std. Chartered/ABNAMRO/Royal Bk of Scotland )
6 个月When it comes to the payment of dividends by the RBI to the government, it appears to mirror the system of the US Federal Reserve, where the Fed shares its profits with the U.S. government. Furthermore, a significant portion of the Board of Governors of the Federal Reserve System is nominated by the President of the United States. In contrast, the government of India holds a majority stake in Indian Public Sector Banks (PSBs), unlike the US Treasury, which does not hold any stake in US banks. Additionally, the RBI is regulated and governed by the Central Board of Directors, who are appointed by the Government of India as per the RBI Act. However, this setup presents a potential conflict of interest, as the approval of dividend payments to the government may be influenced by the Board of Directors of the RBI, who are in turn appointed by the Government of India. This intertwining control structure suggests a lack of independence. It is imperative for the government to ensure the complete independence of the RBI.
Ex Banker
6 个月RBI is a regulator and not an operator to earn profit as it would mean conflict of interests as much as these activities are unregulated.When RBI operates who regulates it? Time to consider hiving off such activities from RBI to some other institution.
Tamal Bandyopadhyay Thanks for Sharing! ??