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RBI transfers a surplus of Rs 57,128 crore to the government for 2019-20

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Mumbai: The Reserve Bank of India (RBI) announced a dividend payment of Rs 57,128 crore to the government on Friday, in line with budget expectations, but not enough to make up for other chiefs’ income shortfalls. This year’s dividend is not comparable to last year’s surplus transfer of Rs 1,76,051 crore, which included a one-time transfer of additional reserves in accordance with the recommendation of the committee headed by Bimal Jalan.
The dividend was declared at the 584th meeting of the RBI central board on Friday. In addition to approving accounts and maintaining a 5.5% contingency risk cushion, the board also discussed the creation of an innovation center. Before the adoption of the Jalan committee’s recommendations, the cushion had been 6.8%.
In the 2020 Union Budget, the government had provided Rs 89,600 crore in dividends from the RBI, state banks and financial institutions. Of this, the RBI was expected to contribute Rs 60 billion. Nationalized banks will not declare dividends this year, as the RBI has prohibited them from doing so to conserve capital and cover defaults stemming from the Covid-19 crisis.
“The central bank’s balance sheet had expanded about 30% in the RBI accounting year. Obviously, such a rapid expansion would limit the amount of seigniorage surplus to the government. Furthermore, at the current rate, the total capital of the RBI, including reserves, exceeds the 20.8-25.4% recommended by the Jalan committee that the central bank should maintain, ”said SBI chief economist Soumya Kanti Ghosh. .
According to Ghosh, the government cannot turn to the central bank to raise funds. “The surprise for the market was the rise in inflation close to 7%. This is due to the change in the consumption of goods and services to food. This will make it difficult for the RBI to cut rates. Now it’s up to the government to take action, ”Ghosh said.
Bankers say RBI revenue generation is greatest when there is volatility in financial markets, be it bonds or foreign currency. In times of rupee volatility, the RBI ends up selling billions of dollars in foreign currency assets, generating huge profits due to the rupee’s weakness. Similarly, when there is volatility in the bond markets, the RBI makes money through its open market operations.
This year, despite the economic crisis, financial markets, including currency and bond markets, have remained stable with the central bank buying dollars. Faced with a massive fiscal deficit, coupled with increased spending due to Covid, the government is eager to maximize revenue from other sources, especially when the department of investment and public asset management (Dipam) has failed to raise resources.

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