A report by Union Bank of India suggests that the Reserve Bank of India (RBI) is likely to transfer approximately Rs 1 lakh crore to govt in FY25, indicating a slight rise from the Rs 874 billion transferred in the prior fiscal year. Analysts anticipate a substantial dividend payout for FY25, with a potential positive surprise akin to the previous fiscal year. Despite multiple factors affecting RBI’s calculations, including interest earnings and foreign exchange gains, analysts anticipate robust dividend amounts.
According to a Union Bank of India report, the Reserve Bank of India (RBI) is expected to transfer about Rs 1 lakh crore to the government in FY25, with analysts foreseeing a steady dividend payout for the fiscal year. This outlook indicates a minor uptick from the Rs 874 billion transferred in the preceding fiscal period.
“The government has allocated Rs 1020 billion for FY25 dividends from RBI, PSU banks, and financial institutions, compared to Rs 1044 billion in FY24. The report anticipates a potential positive surprise, akin to last year when the initial budget estimate for overall dividends was only Rs 480 billion,” the report stated.
In the report, analysts foresee a possible positive surprise, reminiscent of the prior fiscal year, marked by an initial budget estimate of only Rs 480 billion for dividends. Despite various factors impacting RBI’s dividend computation, including interest earnings and foreign exchange (FX) gains, analysts anticipate the continuation of robust dividend figures.
Approximately 70% of the Reserve Bank of India’s balance sheet consists of foreign currency assets, with around 20% invested in domestic government bonds. Interest income from these securities is expected to range between Rs 1.5-1.7 trillion. Furthermore, earnings from liquidity operations have risen due to the banking system shifting to a deficit mode since September 2023.
Although RBI’s income from FX (Forex) sales saw a slight decrease attributed to lower sales volumes, it is anticipated to remain substantial despite an increase in the weighted average cost of reserves.
Furthermore, a decrease in provisions probably helped elevate RBI’s dividend. Provisions for reserves, following the Jalan committee’s Economic Capital Framework, witnessed an escalation in the contingency fund provision owing to augmented balance sheet growth.
The market’s response to the RBI dividend announcement might be constrained in the short run, particularly considering potential election delays in government expenditure. Yet, if surplus funds are employed for initiatives such as G-Sec buybacks, they could bolster the shorter end of the G-Sec curve. Analysts generally hold a positive view on longer-duration G-Secs due to favorable demand-supply dynamics.
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