RBI has announced the highest-ever dividend (2.11 lakh crore) to the government of India. The high-end dividend by RBI would surely bring some big changes, let’s decode the impact of the increased dividend in the coming future.
RBI 2.11 Lakh Crore Dividend
RBI, the central of India has approved the ₹2,10,874 lakh crore dividend to the government at its RBI’s Central Board of Directors 608th meeting, chaired by the RBI governor Shaktikanta Das. The RBI approved the annual amount to the government for the FY 2023-24, which is double the previous year’s dividends.
In the recent interim budget, the government has the budgeted expectation of ₹1.02 lakh crore from the RBI, financial institutions, and public sector banks for FY 2024-25.
It is more than the government budgeted expectation, which would help the new government gain high revenue after the ongoing Lok Sabha polls.
The RBI issued a dividend of ₹1.76 lakh crore for FY 2018-19, this is the second time in a row that the RBI has approved a higher dividend to the government than the amount the government has expected.
Here’s the distribution of RBI’s annual dividend payout to the government from the past few years:
| Years | Dividend payout (in Lakh crore) |
| 2024 | ₹2,10,874 |
| 2023 | ₹87,416 |
| 2022 | ₹30,307 |
| 2021 | ₹99,122 |
| 2020 | ₹57,128 |
| 2019 | ₹1,75,988 |
From where will the RBI get money to pay such a high dividend?
The RBi transfers the annual payout to the government of India through its operations and earnings in the financial market, fees of printing the currency and changing valuation on its dollar holdings.
The RBI also earns from government securities they hold and the return from the foreign currency assets that the central bank has invested in bonds or securities of foreign central banks.
RBI also earns from short-tenure lending to banks and deposits with other banks. They also earn money from the commission they earn for handling the borrowings of central and state governments of India.
Reason for the highest-ever RBI dividends
According to the statements issued by the RBI, the board has arrived at the ₹2.1 lakh crore dividend on the basis of the Economic capital framework (ECF), which the RBI adopted in August 2019 on the recommendation of the Expert Committee, chaired by Dr. Bimal Jalan.
The committee reviewed the extent of RBI ECF had advised that the risk provisioning under the Contingent Risk Buffer (CRB) should be maintained in the range of 5.5 % to 6.5% of the RBI’s balance sheet.
Therefore, the RBI has kept the CRB at 6.50% of the RBI’s balance sheet based on the economic conditions, which seem resilient after the revival of the economic scenario in 2022-23 after COVID-19.
According to IDFC’s first bank, the RBI’s economic capital on 29th March 2024 was recorded at 25.5% of the total assets which was slightly higher than the recommended range of 20.8% to 25%.
Another reason that could have impacted the decision of RBI to increase the dividend is an increase in RBI’s forex reserve worth $646 billion and higher interest income on its bonds & securities during the year.
According to RBI reports, the RBI yields on bonds have hiked to 300 to 400 basis points from the previous years which automatically reflects the sharp peak in the interest income from the RBI’s investment in securities and bonds.
Impact of RBI 2.11 lakh crore dividend
The high-end dividend to the government will help the government in the following ways:
- The increased dividend would make the government stronger to reduce the fiscal deficit and provide them with funds for capital sending.
- With enough funds for capital spending, the RBI has reduced the chances of borrowing for the government. According to the report, the government can cut back the gross borrowing to ₹14.13 trillion for FY25.
- Market analysts expect the dividend boost will yield the below 7% mark in 10 years.
- The increased dividend can boost the banking liquidity.
- It can cover 9 crore hospital admissions under PM-JAY and rise payout under the PM-KISAN scheme.
Overall, the RBI hiked dividend would make the government more financially stable and boost the government resources for FY 25, if the government uses the fund systematically. Industrialists, business groups, and economists have welcomed this move of RBI to boost the nation’s economy.