In a recent move, the RBI substantially reduced the government’s borrowing through Treasury Bills by Rs 60,000 crore, effectively decreasing the amount of funds the Centre would have raised through these short-term instruments, states an ET report by Bhaskar Dutta.Additionally, the central bank implemented measures to enhance the success of an upcoming operation in which the government intends to repay Rs 60,000 crore of earlier borrowings ahead of schedule.
These actions, aimed at utilizing idle government funds due to election-related spending constraints, also suggest that the Centre’s finances may receive a substantial replenishment in the near future. As the government’s debt manager, the RBI is expected to announce the transfer of its surplus funds to the government towards the end of May.
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RBI Dividend
According to Kanika Pasricha, the chief economic advisor at Union Bank of India, “We expect the RBI to transfer a surplus of INR 1,000 billion (Rs 1 lakh crore) to the government in FY25… while there are many moving parts in the RBI dividend calculation, our assessment shows a likely repeat of a strong dividend number.”
Based on publicly available information about the Reserve Bank of India’s balance sheet, analysts have performed calculations that suggest the central bank may exceed the surplus transfer of Rs 87,416 crore given to the Centre in the previous year.
In a recent note to clients, A Prasanna, head of research at ICICI Securities Primary Dealership, stated, “Totalling up all the operating expenses and subtracting them from total income, we arrive at a surplus (before provisions) of Rs 3.4 trillion (Rs 3.4 lakh crore). Once we account for provisions of Rs 2.2 trillion, that leaves us with a dividend of Rs 1.2 trillion.”
Prasanna added that such a substantial dividend would likely be accompanied by the maximum allowable increase in the central bank’s core capital ratio, thereby bolstering the RBI’s balance sheet for challenging times.
One of the primary factors that could contribute to a significant surplus transfer is the sharp rise in interest earned by the RBI through its foreign exchange assets, which can be attributed to the aggressive rate hikes implemented by the US Federal Reserve over the past two years.
Moreover, although the RBI’s gross sales and purchases of US dollars in FY24 were lower compared to FY23, a year marked by the central bank’s heavy intervention in markets to protect the rupee from excessive volatility, analysts still anticipate a substantial boost to the central bank’s earnings from foreign assets.
