India’s central bank will give a record dividend to the government, shoring up finances to bolster growth in Asia’s third largest economy.
The Reserve Bank of India board approved the transfer of 2.69 trillion rupees ($40.5 billion), the central bank said in a statement Friday. The figure compares with a budgeted estimate of 2.56 trillion rupees as dividend from the RBI and state-owned banks, and a previous record payout of 2.11 trillion rupees last year.
The RBI makes an annual payout to the government from the surplus income earned from investments and valuation changes on its foreign exchange holdings, including the dollar, and the fees it gets from printing currency notes.
The central bank’s board also decided to widen the contingent risk buffer of the RBI to 4.5%-7.5% of the balance sheet from 5.5%-6.5% earlier. The revised economic capital framework “provides requisite flexibility to the Central Board in the maintenance of risk buffers, considering the prevailing macroeconomic” conditions, the RBI said.
A bonanza from the central bank will help meet the government’s 4.4% fiscal deficit target for the current financial year by fortifying its finances and offset a shortfall in tax collections due to weak growth. It will also create a cushion for any potential losses from import duty cuts as trade talks proceed.
Details on how the RBI managed to generate this substantial surplus will be disclosed in its annual report, expected to be released in the coming days.
