RBI's Dividend Payout May Come Under Pressure Due to Declining Interest Rates and Liquidity Absorption

Strategic Insights -

The Reserve Bank of India's (RBI) foreign exchange and money market interventions to maintain currency stability and stable yields have put pressure on its finances, according to the government's revised budget forecast. The RBI's earnings are expected to decline due to a decline in interest rates on overseas bank deposits and securities, where foreign exchange reserves are parked. The RBI's surplus, which accounted for a majority of the payout in the previous year, is expected to be lower this fiscal.

Key Takeaways:

  • The government has projected a conservative estimate of dividends from RBI and banks for FY'23 at Rs 74,000 crore, which is Rs 27,400 crore lower than the revised estimate of Rs 1,01,353 crore.
  • The RBI's dividend payout for the financial year 2020-21 was Rs 99,122 crore, but paid during the current financial year in May 2021.
  • The RBI's balance sheet size increased by 6.99% for the year ended March 31, 2021, mainly due to its liquidity and foreign exchange operations.
  • The income for the year decreased by 10.96%, while expenditure decreased by 63.10%, allowing the RBI to transfer a record surplus to the government during the year.
  • The RBI's deployable reserves may not rise substantially as forex reserves have risen by only $ 57 billion so far in the current fiscal compared to $ 101 billion in the same period a year ago.
  • The interest outgo to banks on account of the central bank's liquidity absorption from the banking system is expected to be higher this year.

Statistics:

  • RBI's dividend payout for FY'21: Rs 99,122 crore
  • RBI's balance sheet growth: 6.99% (year ended March 31, 2021)
  • Income decrease: 10.96% (year ended March 31, 2021)
  • Expenditure decrease: 63.10% (year ended March 31, 2021)
  • Forex reserves increase: $57 billion (current fiscal)
  • Forex reserves increase (prev year): $101 billion (same period a year ago)

Sources:

  • Budget forecast of dividend from RBI and banks for FY'23
  • Revised estimates for FY'21-22
  • RBI's balance sheet size as on March 31, 2021 ( The Economic Times )
  • RBI's dividend payout for FY'21 (Economic Times)