Economists Estimate RBI Dividends To Centre May Double Due To Revaluation Gains: Report

According to a survey, economists estimated that the surplus transfer for the fiscal year ending in March could amount to Rs 9 lakh crore, higher than the government estimate of Rs 4.8 lakh crore

It is worth noting that for the last financial year, the RBI approved a dividend of Rs 3.03 lakh crore, the lowest in a decade.

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The Reserve Bank of India (RBI) board may nearly double its dividend to the government from official estimates due to revaluation gains and profits from selling dollars, citing economists news agency Bloomberg reported. This increased dividend could help the government to narrow its fiscal deficit, the report mentioned.

According to a survey conducted by Bloomberg, nine economists estimated that the surplus transfer for the fiscal year ending in March could amount to Rs 9 lakh crore ($109 billion). This figure is significantly higher than the government's own estimate of Rs 4.8 lakh crore, which includes dividends from state-controlled banks as well. It is worth noting that for the last financial year, the RBI approved a dividend of Rs 3.03 lakh crore, the lowest in a decade.

The RBI board is scheduled to convene on Friday, according to the report. Amid early indications of slowing growth accompanied by elevated interest rates and declining global demand, a higher dividend may assist the government in achieving its objective of reducing the fiscal deficit from 6.4 per cent to 5.9 per cent of the GDP in the current fiscal year, the report noted. This measure also aims to bolster revenues in anticipation of the 2024 national election.

People familiar with the matter told Bloomberg that the government is expecting the RBI to transfer a significantly higher dividend, which will help reduce its market borrowing.

Madhavi Arora an economist at Emkay Global Financial Services told Bloomberg, “Gains from the near record gross foreign exchange sales in fiscal year 2022-23 would be the major driver of higher surplus.” 

According to her, the dividend could bring in additional revenue of 0.2 per cent of GDP, which could partly offset losses in bonds and cover for lower tax revenue and slower divestment.

The RBI makes an annual payout to the government from the surplus income earned from investments and valuation changes on its foreign exchange holdings, including the dollar and the fees it gets from printing currency notes. It must maintain a contingency risk buffer of 5.5 per cent to 6.5 per cent of its balance sheet.

According to economists polled by Bloomberg, the projected dividend from the RBI is expected to range between Rs 5.25 lakh crore to Rs 16.5 lakh crore. The highest estimate surpasses the central bank's record dividend transfer of Rs 12.3 lakh crore in the year 2018-19. 

The report also noted that in the last fiscal year, the RBI conducted massive dollar sales, likely for currency intervention, with data showing $206.4 billion (20.64 lakh crore) worth of currency sold in 11 months until February. This is in comparison to $96.7 billion (9.67 lakh crore) sold throughout the entire fiscal year 2021-22.

Gaura Sen Gupta, an economist at IDFC First Bank told Bloomberg that the RBI probably acquired the greenback at around Rs 62.7 per dollar in the last fiscal year, and sold it around Rs 81-82 level, earning as much as Rs 690 billion from foreign exchange transactions. Since the central bank denominates its balance sheet in rupees, a stronger dollar results in a revaluation gain that can also be tapped to boost the transfer.  

According to economist Madhavi Arora, the report said, in the last fiscal year, it is estimated that the RBI's balance sheet experienced a growth of approximately 2 per cent, which is the slowest expansion since the demonetization exercise of 2016-17. This growth rate is notably lower compared to the 9 per cent expansion witnessed in the previous year. The limited necessity for bond purchases from the markets can be attributed to the abundant liquidity in the system. 

However, the increasing global interest rates likely resulted in a decline in the value of foreign bonds held by the RBI. Consequently, this led to nominal losses that affected the overall earnings, according to Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership Ltd.

Other economists cautioned against a higher dividend payout as India’s foreign exchange reserves have stayed below $600 billion for the past 13 months. However, portfolio inflows and currency appreciation against the dollar are supporting the case.