What explains the record dividend by RBI for FY24

The Reserve Bank of India (RBI) reported a massive 141% surge in its net income for the financial year 2024 (FY24), driven by a decline in expenditures, particularly lower provisions. This impressive increase in net income paved the way for the announcement of a record dividend by the central bank.

Net interest income soared to ₹2.1 trillion by the end of March 2024, up from ₹87,420 crore the previous year, as detailed in the central bank's annual report released on Thursday.

This substantial rise in net income enabled the RBI to declare a record dividend payout of ₹2.1 trillion to the government for FY24. This was higher than the government’s budget estimate and analysts' expectation of ₹1 trillion, and 141% larger than the ₹87,416-crore dividend payout in FY23. 

This massive dividend payout is expected to help the Centre achieve its fiscal deficit target of 5.1% of gross domestic product (GDP) for FY25. The current dividend, paid in May 2024, will be accounted for in FY25 by the government.

Read This | Mint Explainer: What does RBI’s record dividend payout to the government mean?

The most notable increase in the central bank's income came from foreign sources, which saw a 71% year-on-year (YoY) rise to ₹1.03 trillion. In contrast, domestic income remained steady at ₹85,428 crore for FY24.

Total expenditure fell 56.3% on year to ₹64,694.33 crore in FY24, down from ₹1.48 trillion at the end of March 2023, largely due to lower provisions.

A critical element determining the amount of the transferable surplus is the provision towards the contingency fund (CF). The RBI allocated ₹42,820 crore to the CF, raising the buffer to 6.5% from 6% last year. However, this provision was 67% lower than the previous year.

Revaluation gains on the RBI's rupee and foreign currency assets, resulting from softening yields, enabled the central bank to set aside lower contingency provisions, thus allowing the surplus income to be transferred as a dividend to the government.

And This | RBI’s huge surplus transfer: Largesse in need of an explanation

“We expect that higher dividend payments could continue in FY25. This is because US yields remaining above 4% will boost asset income for the RBI and bolster foreign exchange reserves through dollar purchases. Thus, there is a high probability of a healthy RBI dividend in FY25, potentially nearing ₹2.1 trillion,” the State Bank of India in its research report.

“We expect that higher dividend payments could continue in FY25 also. This is because US yields continuing at above 4% will imply asset income boost for RBI as well as bolstering foreign exchange reserves through dollar buying. Thus there is a large probability of RBI dividend being healthy in FY25 as well and may even be closer to ₹2.1 trillion,” SBI Research said in a report.

Overall, the RBI's balance sheet grew by 11.08%, reaching ₹70.48 trillion, reflecting the central bank's robust financial health and its ability to support substantial dividend payouts.

Also Read | No carrot, only stick: Why the RBI has gone beyond moral suasion and fines