The higher-than-expected dividend to be given by the Reserve Bank of India (RBI) to the government did shake the market positively as could be seen in the softening of bond yields. The finer details of the emergence of this dividend will be available once the accounts are worked out and the central bank brings out the annual report. Till then, there will be considerable speculation on the components that have contributed to the sum of Rs 2.1 trillion.

This is the highest amount ever earned by the RBI on its books that is being transferred to the government, with the previous high being Rs 1.76 trillion in FY19. Here, the higher surplus emerged as the result of a special committee being set up to study the optimal reserves to be held by the RBI. The committee had recommended certain norms in terms of contingency reserves, which led to the write-back of “other income” that increased income and hence surplus. The amount was Rs 52,637 crore, which was for excess risk provisioning. But this time the ratio has been increased from 6% to 6.5% and hence there could be no such transaction on the balance sheet side. The surplus would have emanated from the operations of the RBI.

There are three sources of income which would have yielded this increase. The first is the income from liquidity operations where the system was in a deficit since October, which meant that the variable repo rate operations would have yielded upwards of 6.5% on the amount borrowed by banks. The second would be the RBI’s forex operations where the central bank was regularly in the market, buying and selling dollars to stabilise the currency. Both legs of the transaction would have yielded a revenue for the RBI depending on the price at which dollars were bought and sold. This was a large component in FY23, too, and overall operations this year was of the order of $338 billion in FY24 as against $399 billion in the previous year. The third source of income would have been the returns on forex reserves. Forex reserves increased by around $60 billion last year. A sum of $570 billion as forex reserves would have delivered a return of close to 4%. In FY23 the yield had gone up to 3.73% from 2.11% in FY22 as the Fed had raised interest rates sharply right into 2023. Therefore, a combination of these three sources of income would have contributed largely to the surplus that has been generated this time.

Clearly, even the government had not expected this amount as can be viewed from the Budget document that had looked at Rs 1.02 trillion as dividend from both the RBI and public sector banks (PSBs). This gives a lot of cushion to the government........

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