India’s RBI Approves Record $24 Billion Payout to Government
This comes at a time when New Delhi is under pressure to provide a fiscal stimulus to the slowing economy.
(Bloomberg) -- India’s central bank approved a record 1.76 trillion-rupee ($24.4 billion) payout to the federal government, boosting New Delhi’s coffers at a time when it is under pressure to provide a fiscal stimulus to the slowing economy.
The Reserve Bank of India’s board approved a transfer, which includes 1.23 trillion rupees as dividend and 526.4 billion rupees from its surplus capital, according to a statement. The dividend payment includes 280 billion rupees 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% of gross domestic product.
The combined payout far exceeds the government’s budget estimate of 900 billion rupees 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 700 billion rupees of fresh capital into state-run lenders, Sitharaman said Friday as she announced a number of measures to stimulate growth from a five-year low. Data due Friday will probably show India’s gross domestic product expanded 5.7% in the quarter ended June, slower than the 5.8% pace seen in the previous three months.
‘Record Transfer’
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,” 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% of balance sheet, while the panel on capital framework recommended a requirement between 5.5% to 6.5%, according to the statement. It was decided to maintain the realized equity level at 5.5%, 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.
--With assistance from Subramaniam Sharma, Abhay Singh, Ashutosh Joshi and Nupur Acharya.
To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram, Jeanette Rodrigues
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