RBI Cuts Surplus Transfer to Govt

The Reserve Bank of India slashed the surplus it transfers to the government by more than half amid speculation that demonetisation imposed a cost on the regulator which also functions as a banker to the government. The unexpected shrinkage in the RBI's surplus transfer is likely to dent the government's fiscal deficit calculations, which may push up the borrowings for the fiscal year, said economists.

The RBI would transfer Rs.30,659 crore to the treasury, down from Rs.65,876 crore a year earlier, it said in a statement. Record low yields from investment overseas may also have reduced the returns for the RBI.

The central bank's annual transfer of surplus is a significant amount for the government. For many years, the RBI has been doing more than what the government factors in at the beginning of the fiscal year in the union budget.

The lower dividend this year will leave a big hole in the government budget in fiscal 2018, as it had budgeted Rs.74,901 crore as dividend from the RBI, nationalised banks and financial institutions. Last fiscal year, the government received Rs.76,172 crore as such dividends of which the RBI contributed Rs.65,876 crore, implying that amount raised could be much less than budgeted this year because of the lower dividend from the RBI.

The reduction could also be due to a number of factors, including higher cost of printing new currency notes and cost of managing excess liquidity generated from phasing out of Rs.500 and Rs.1,000 notes, though it is difficult to identify the exact reasons at this stage.

The RBI, from 2014, transfers its entire profit to the government, following global best practices followed by central banks. An analysis of past profit statements of the RBI indicates that a bulk of the income for the central bank is interest income, of which nearly 60% is interest earned on domestic bond holdings.

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