The Reserve Bank of India (RBI) approved a record Rs 1.76 lakh-crore ($24.4 billion) payout to the central government, boosting Delhi's coffers at a time when it is under pressure to provide a fiscal stimulus to the slowing economy.
The central bank's board approved a transfer, which includes Rs 1.23 lakh crore as dividend and Rs 52,640 crore from its surplus capital, according to a statement. The dividend payment includes Rs 28,000 crore already transferred to the government in February.
The payment from its surplus capital comes after the RBI's board accepted the recommendations of a panel named by it to study its economic capital framework, it said.
The transfer of dividend and surplus capital by the central bank could be a timely boost for a government that is looking to step up spending as it deals with a rapidly slowing economy. Finance Minister Nirmala Sitharaman last week announced various steps to spur growth including hastening capital infusion in state-run lenders even as she strives to meet a narrower fiscal gap goal of 3.3 per cent of gross domestic product.
The combined payout far exceeds the government's budget estimate of Rs 90,000 crore as dividend from the RBI this year.
"The funds ensure that government can provide the necessary boost to the economy while keeping its fiscal deficit contained," said Dharmesh Kant, head of retail research at Mumbai-based Indianivesh Securities Ltd. "We see this as a positive move for sectors like banking, infrastructure, cement and metals."
The government will immediately inject Rs 70,000 crore of fresh capital into state-run lenders, Ms Sitharaman said Friday as she announced a number of measures to stimulate growth from a five-year low. Data due Friday will probably show the country's gross domestic product expanded 5.7 per cent in the quarter ended June, slower than the 5.8 per cent pace seen in the previous three months.
The "record transfer" of dividend and surplus capital will alleviate the risks arising out of a tax revenue shortfall, said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. It will allow the government to immediately infuse capital in state-run banks, she said.
"The bond markets will further build on its gains," Ms Rao said, adding that it is likely to see yields correcting by at least 10 to 15 basis points.
The RBI pays dividends to the government every year, based on the profits from its investments and printing of notes and coins. It will release its balance sheet as part of its annual report later this week.
Over the past couple of years, the Finance Ministry has been seeking higher payouts, arguing the central bank is holding more capital than it needs.
The RBI's realized equity stood at 6.8 per cent of balance sheet, while the panel on capital framework recommended a requirement between 5.5 per cent to 6.5 per cent, according to the statement. It was decided to maintain the realized equity level at 5.5 per cent, the central bank said.
The panel also drew a distinction between what part of the RBI's surplus capital can be shared and what cannot. It said realized equity could be used to meet all risks and losses as they were built over a period of time through retained earnings, while revaluation gains were unrealized and hence not distributable.
"As on June 30, 2019, the RBI stands as a central bank with one of the highest levels of financial resilience globally," the central bank said in the statement.