The Reserve Bank of India’s record Rs 2.1 lakh crore dividend payout to the government for FY24 will help ease the fiscal deficit target for FY25.

This year’s gift is 141% higher than the dividend payout of Rs 87,416 crore for FY23. It will help in boosting the revenue of the government.

The previous highest dividend payout by the RBI to the government was Rs 1.76 lakh crore in 2018-19.

The RBI board, at its meeting today, approved the transfer of Rs 2,10,874 crore as surplus to the Central Government for the accounting year 2023-24, the central bank said in a statement.

The government had budgeted a receipt of Rs 1.02 lakh crore as dividends from the RBI, public sector banks and financial institutions in the interim budget for the fiscal year 2024-25 (April 2024 to March 2025) presented in February this year.

The decision on the dividend payout was taken at the 608th meeting of the Central Board of Directors of the RBI held under the chairmanship of Governor Shaktikanta Das.

The central government aims to contain the fiscal deficit to 5.1% of the GDP for FY25. The current dividend, paid in May 2024, will be accounted for in FY25 by the government.

A higher dividend will also help the government to offset its lower than targeted revenue from divestment and other proceeds. It could further aid the government to cut back its gross borrowing estimate of Rs 14.13 lakh crore in FY25.

Bond yields immediately felt the impact, with the 10-year benchmark yield falling below 7% after the RBI’s dividend announcement.

Aditi Nayar, chief economist and head of research and outreach at rating agency ICRA, said that the higher-than-budgeted RBI surplus transfer would help boost the Centre’s resources in FY2025, “allowing for enhanced expenditures or a sharper fiscal consolidation than what was pencilled into the Interim Budget for FY2025".

Increasing the funds available for capex would boost the quality of fiscal deficit but additional spending may be difficult to incur within the eight-odd months left in the fiscal year after the final budget is presented, Nayar added.

The RBI board also reviewed the global and domestic economic scenario, including risks to the growth outlook.

The Board discussed the working of the Reserve Bank during 2023-24 and approved its Annual Report and Financial Statements for the last fiscal.

The RBI board decided to raise the contingency risk buffer (CRB) to 6.5% from 6% previously as the economy remains robust and resilient.

The RBI said that during accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the Covid-19 pandemic, the board had decided to maintain the CRB at 5.50% of the Reserve Bank's balance sheet size to support growth and overall economic activity.

"With the revival in economic growth in FY 2022-23, the CRB was increased to 6%. As the economy remains robust and resilient, the board has decided to increase the CRB to 6.50% for FY 2023-24," the central bank said.

The transferable surplus for 2023-24, the RBI said, has been arrived at on the basis of the Economic Capital Framework (ECF) adopted by it in August 2019, as per recommendations of the Bimal Jalan-headed expert committee.

The committee had recommended that the risk provisioning under the CRB be maintained within a range of 6.5%-5.5% of the RBI's balance sheet.