RBI to transfer ₹28,000cr interim dividend to Centre

NEW DELHI: The Reserve Bank of India’s (RBI) board on Monday decided to pay an interim dividend of ₹28,000 crore to the government, the second successive year that it has paid one — a move that analysts say may help the government meet its fiscal deficit target of 3.4% for 2018-19.

Last year, RBI paid an interim dividend of ₹10,000 crore in February. It paid another ₹40,000 crore in August (its financial year ends in June).

The board took the decision after a customary post-budget meeting with finance minister Arun Jaitley on Monday morning. The government, which has announced a raft of popular schemes in the interim budget, needs resources to meet its commitments.

Hours before the announcement was made, Jaitley said the RBI takes an independent decision on the interim dividend.

In a statement released later, RBI said: “The board reviewed the current economic situation, global and domestic challenges and other specific areas of operations of the Reserve Bank. Based on a limited audit review and after applying the extant economic capital framework, the Board decided to transfer an interim surplus of ₹28,000 crore to the central government for the half-year ended December 31, 2018.”

After the board’s meeting with Jaitley, RBI governor Shaktikanta Das told reporters that he would meet heads of commercial banks on Thursday to discuss passing on the benefit of lower policy rates to the consumer. A lower interest rate should, in theory, attract investors and boost growth.

In its monetary policy review on February 7, RBI announced a surprise 0.25 percentage point cut in the rate to 6.25%.

“Transmission of rates is very important especially after central bank announces a rate cut,” Das told reporters in New Delhi.

Commercial banks have not passed the entire benefit to their consumers as they lowered their lending rates by only five basis points. One basis point is one-hundredth of a percentage point.

Pointing at the “benign” inflation outlook, after the Monetary Policy Committee (MPC) meeting on February 7, Das said that it was vital to act “decisively and in a timely manner” to address the objective of “growth”. According to RBI, the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth.

“Interim surplus means a final amount of dividend is not yet decided and this is an ad hoc amount. It was something expected and also budgeted,” EY India chief policy advisor DK Srivastava said.

Speaking about the banks not passing the full benefits of RBI’S policy rate cuts, Srivastava said, “Lower interest rate will certainly stimulate the economy and accelerate the growth. But, it is a commercial decision of the banks and the RBI’S role is advisory. Governor can just make an appeal”. Finance minister Jaitley also said on Monday that India needs fewer and mega banks that are strong. An alternative mechanism headed by the finance minister in September last year had decided the amalgamation of Bank of Baroda, Vijaya Bank and Dena Bank to create a combined business of ₹14.82 lakh crore. The government had merged five associate banks of SBI and the Bharatiya Mahila Bank with India’s biggest public sector bank in 2017.