The Reserve Bank of India (RBI) Friday raised by about three-fourths its annual surplus transfer to the Centre, beating both market estimates and the government’s conservative budget projections. Revaluation gains of forex reserves and a decision to maintain aggressive contingency-risk buffers likely helped increase the dividend payout to nearly Rs 1 lakh crore.
The central bank’s board Friday decided to maintain the contingency risk buffer at 5.5%, which is at the lowest end of the 5.5-6% range prescribed by the Bimal Jalan Committee that had reviewed the RBI’s economic capital framework.
Also, after factoring in the prescribed provisions for the year, the board approved the transfer of Rs 99,122 crore as surplus to the government for the accounting period of nine months ended March 31. In the fiscal year ended June 2020, the RBI had transferred Rs 57,128 crore.
Mint Road’s accounting year was aligned with that of North Block last year.
The Street had been working with about Rs 65,000 crore by way of surplus transfer, while the government estimates in the budget documents were pegged even lower — at around Rs 45,000 crore. Increased G-Sec Holdings by Banks
“In our view, the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the central bank — the RBI recently allowed itself to book profits on its FX transactions from a weighted average cost perspective,” said Rahul Bajoria, chief India economist at Barclay’s Capital.
“Our estimates show that this move could have helped the central bank boost yields on its foreign asset holdings.”
Furthermore, increased holdings of government securities that many commercial banks have parked with the RBI are likely to have added to the central bank’s income for the year.
“We think the dividend announcement will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal year,” said Bajoria. “This could be particularly helpful in alleviating the impact of the second Covid wave.” The Centre plans to borrow more than Rs 12 lakh crore in FY22, and much of that targeted borrowing could be front-loaded.