RBI’s dividend to government halves

Will transfer ~30,659 cr; experts see demonetisation effect

The Reserve Bank of India (RBI) will transfer ~30,659 crore of its surplus to the government for the financial year 2016-17, less than half of the ~65,876 crore it transferred a year earlier.

The RBI did not provide any reason for the decline in dividend but economists said this indicated the cost incurred by the central bank in printing new notes as well as in sterilising liquidity after old ~500 and ~1,000 currency notes were scrapped in November and subsequently returned to the banking system.

The dividend paid is the lowest since 2011-12, when the RBI had transferred ~16,010 crore of its surplus to the government. In 2012-13, the central bank paid ~33,010 crore. The RBI’s financial year runs from July to June. The central bank is expected to publish its annual reports next week after its board met on Thursday to clear the accounts.

In 2012-13, the YH Malegam Committee recommended the central bank transfer its entire surplus to the government. The RBI has been transferring its entire surplus to the government since then. It paid ~52,679 crore in 2013-14 and ~65,896 crore in 2014-15.

In the Union Budget for 2017-18, the government had accounted for a dividend of ~74,901 crore from the RBI and other nationalised banks. An official later said the RBI’s share would be ~58,000 crore.

RBI Governor Urjit Patel told a parliamentary panel in July that the central bank had not finished counting the old returned notes.

He has also said notes not returned remain the RBI’s liability and cannot be passed on to the government as dividend.

The Union Budget had not accounted for any special dividend from the RBI against demonetisation, which some economists had estimated would be in the lakhs of crores of rupees.

The low actual dividends, meanwhile, will exert pressure on the government to meet its fiscal deficit. Care Ratings Chief Economist Madan Sabnavis said the fiscal deficit could increase from 3.2 per cent of the GDP to 3.4 per cent this year. At its peak, the excess liquidity parked by banks neared ~5 lakh crore, on which the central bank had to pay them 6 per cent interest. The average daily liquidity absorption continued to remain above ~2 lakh crore after demonetisation was announced.

According to Devendra Pant, chief economist of India Ratings & Research, the appreciation of the rupee against the dollar depressed returns, in rupee terms, on the RBI’s foreign holdings. The rupee has appreciated by more than 6 per cent against the dollar since January.