The State Bank of India Research, in a note, said that the declaration of a record dividend by the RBI today was well received by the financial markets. The SBI note said the benchmark yields softening to sub-7% in testimony to the highest ever surplus transfer that is estimated to ease fiscal deficit by 30 to 40 bps from the budgeted level of 5.1% of GDP for FY25 as was set in the Interim Budget.
Earlier this evening, the RBI’s Central Board of Directors agreed to transfer of Rs 2,10,874 crore as surplus to the government for the financial year 2023-24. The RBI said in a statement on May 22 said the surplus amount calculation is based on the Economic Capital Framework (ECF) adopted by the central bank on August 26, 2019, as per recommendations of the Bimal Jalan committee.
“The sharp jump in the surplus amount could be attributed to higher income from the forex holding of the central bank, among other factors. The dynamics of surplus for RBI was decided by its LAF operations and interest income from its holding of domestic and foreign securities. The balances under the daily LAF show that RBI was in absorption mode for the most part of the financial year as it kept the monetary policy steady. RBI absorbed liquidity for 259 days out of the 365 days,” the SBI said in its research paper.
“RBI’s income was Rs 1.6 lakh crore in FY22 and Rs 2.35 lakh crore in FY23. For FY24, it is projected to be around Rs 3.75 to 4 lakh crore. While all other things in the balance sheet are either steady or increasing as per trend, however, foreign investments have increased sharply. Therefore, nearly 60-70% YoY increase in RBI’s income is expected to be from Interest Income from Foreign Securities as well as Exchange gain from foreign exchange transactions,” the note further said.
The surplus amount in FY24 is more than double the Rs 87,416 crore in FY23 and is also much higher than the budgeted Rs 1.02 lakh crore (inclusive of dividends from banks and financial institutions) in the Interim Budget 2024-25.
SBI Research noted that the provisional RBI balance sheet components show:
> The RBI domestic assets increased marginally.> Foreign assets grew sharply.> Nearly 60-70% YoY increase in RBI’s income is expected to be from Interest Income from Foreign Securities as well as Exchange gain from foreign exchange transactions.> With higher domestic interest rates and foreign interest rates and possible contracting payable under LAF, RBI surplus swelled in FY24.> The increase in price of gold also added to overall expansion in RBI balance sheet.
The Bimal Jalan committee recommendations in 2019 which recognized that the RBI’s provisioning be maintained within a range of 6.5% to 5.5% of the RBI’s balance sheet, comprising 5.5 to 4.5% for monetary and financial stability risks and 1% for credit and operational risks, had recommended a surplus distribution policy which should target not only the total economic capital (as per the extant framework) but also the realised equity level of the RBI’s capital, bringing about greater stability of surplus transfer to the Government, with the quantum of the latter depending on balance sheet dynamics as well as the risk equity positioning by the Central Board.
