The central board of directors of the Reserve Bank of India met on Thursday in Mumbai to review the Economic Capital Framework (ECF) of the central bank, a move that could lead to record surplus transfer to the Centre.
In the FY26 budget, the government has estimated RBI’s surplus transfer in excess of Rs 2.1 lakh crore, an all-time high. The robust dividend in FY25 (RBI accounting year FY24) was against the budget estimate of Rs 80,000-90,000 crore, giving extra fiscal space to the Centre. This enabled the government to spend more as well as to bring down the fiscal deficit to 4.8% of GDP from the budget estimate of 4.9%.
“The RBI is expected to pay a record dividend of as much as Rs 3.5 lakh crore ($41 billion) to the government this year, helping to offset a tax revenue shortfall,” Bloomberg reported. FE could not verify this.
The provisions required under the RBI’s contingent risk buffer (CRB) were raised to 6.5%, the upper band of 5.5-6.5% requirement, for FY24 from 6% in the previous fiscal, in line with the Jalan committee recommendations.
During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of Covid-19 pandemic, the board had decided to maintain the CRB at 5.5% of the RBI’s balance sheet size to support growth and overall economic activity. With the revival in economic growth in FY23, the CRB was increased to 6%. As the economy remained robust, the board had decided to increase the CRB to 6.5% for 2023-24.
Now, since the economy is likely to take a hit due to global trade tensions, the RBI board may lower the CRB requirement to free up more cash for transfer to the government to boost spending, as tax revenues may come under pressure. Various agencies including IMF and the World Bank have estimated 20 bps to 50 bps negative impact on India’s economic growth owing to global uncertainties and heightened trade tension.
“The 615th meeting of the Central Board of Directors of Reserve Bank of India was held today in Mumbai under the Chairmanship of Sanjay Malhotra, Governor. As part of the agenda, inter alia, the Board reviewed the Economic Capital Framework (ECF) of the Reserve Bank of India,” the central bank said in a statement.