The dividend/surplus transfer of the Reserve Bank of India (RBI) is a significant source of the government’s non-tax receipts (NTRs). In 2021-22, the RBI transferred Rs 991.22 billion — 27.15 percent of the total NTRs worth Rs 3.65 trillion.
RBI dividends during the Modi 2.0 government (2019-2024) have followed a volatile yo-yo pattern. In 2019-20, the RBI declared a dividend of Rs 1.76 trillion, followed by Rs 571.28 billion, Rs 991.22 billion, Rs 303.07 billion, and Rs 874.16 billion in the next four years.
It is the turn of lower dividends this year. However, there will be a new government in office soon. What will RBI Governor Shaktikanta Das offer to the new government?
RBI Resources are Costless
The RBI’s final assets and liabilities for 2023-24 will be available only when it publishes its balance sheet. The bank, however, does report the estimated size of its assets and liabilities in its weekly statistical supplement (WSS). At the end of 2023-24, total assets/liabilities were Rs 70.69 trillion (WSS of 5 April).
The RBI is an exceptional institution. It decides the volume of its liabilities, i.e. its resources, which are also almost completely costless. The liabilities can be primarily divided into three categories — currency issued, bank deposits, and accumulated reserves and provisions, none of which cost the RBI anything.
At the end of 2022-23, the currency issued was worth Rs 33.48 trillion, whereas the printing and management cost for the year was only Rs 4,683 crore, not even 0.014 percent of the currency issued. At the end of 2023-24, the worth of currency issued stood at Rs 34.82 trillion (49.26 percent of the total liabilities of Rs 63.45 trillion).
The banks are made to keep cash reserves with the RBI, on which the RBI pays no interest, as part of their cash reserve ratio (CRR) obligations. At the end of 2022-23, the total deposits were Rs 13.54 trillion (and of the banks' — 11.71 trillion). During 2023-24, the RBI asked the banks to deposit withdrawal proceeds of 2000 rupee notes with it as well, again without paying any interest. The total deposits increased to Rs 17.82 trillion at the end of 2023-24.
The RBI accumulates mark-to-market valuation gains primarily on its foreign currency assets (FCA) [increase in rupee value on account of depreciation]. It also retains a hefty part of annual surpluses as realised/cash reserves. For 2018-23, the RBI retained as much as Rs 3.41 trillion of the surplus of Rs 7.91 trillion (43.13 percent).
And at the of end 2022-23, the accumulated valuation and realised cash reserves amounted to Rs 15 trillion and the total capital, including these reserves, was at Rs 16.42 trillion. The WSS informs that total capital, provisions, and reserves were Rs 18.05 trillion at the of end 2023-24.
RBI Earns Poor Returns From Its Assets
The RBI’s assets are predominantly foreign currency assets — Rs 42.16 trillion out of the total assets of Rs 63.45 trillion at the end of 2022-23. It also held rupee securities of Rs 14.06 trillion, gold assets of Rs 3.72 trillion, and loans, advances, and other investments of Rs 3.51 trillion.
It earned a total income of Rs 2.35 trillion in 2022-23, which was 3.71 percent of its total assets under management (AUM) worth Rs 63.45 trillion.
Quite intriguingly, the RBI management decided to generate a significant amount of exceptional income of Rs 3.35 trillion (about 38.4 percent of total income) during the five years of the Modi 2.0 government — converting unrealised valuation gains on its FCAs by selling and buying the securities at current prices.
In 2022-23, the RBI earned an exceptional income of Rs 1.03 trillion. If this income is excluded from the total income of Rs 2.35 trillion, the return on RBI AUM falls to only 2.08 percent.
The RBI earned, undoubtedly, a very low rate of return on its assets in 2022-23, even though interest rates on the US dollar and Euro (in which FCAs are invested largely) were at their peak in decades.
Estimated RBI surplus for 2023-24
The RBI does not provide its income details as part of its WSS or in any other dataset. Actual details will be available only when the RBI Balance Sheet of 2023-24 is published as part of its Annual Report.
There is, however, an indirect way of estimating the RBI's income.
For the year 2023-24, the RBI’s total capital, proxied by ‘other liabilities’ in the WSS, is Rs 18.05 trillion. The total capital was Rs 16.42 trillion at the end of 2022-23. The increase in total capital/ ‘other liabilities’ of Rs 1,62,453 crore can be broadly treated as the surplus of the RBI for the year.
The estimated surplus of Rs 1.62 trillion for 2023-24 (a net return of 2.30 percent on total assets of Rs 70.69 trillion) is lower than the surplus of Rs 2.18 trillion in 2022-23 but higher than the surplus of Rs 1.45 trillion in 2021-22.
As the generation of all exceptional profits would have been accounted for in the WSS data, the estimated surplus of Rs 1.62 trillion seems quite credible. The RBI, of course, will make certain adjustments.
The lower surplus estimates for 2023-24 are supported by the composition of the AUM. Rupee securities, which earn the best returns, were down by Rs 431.62 billion at the of end 2023-24 (from Rs 14.06 trillion to Rs 13.63 trillion). The FCAs, which yield the least return, on the other hand, witnessed a big increase of Rs 5.83 trillion (from Rs 42.16 trillion to Rs 47.99 trillion). The gold assets, which yield no income, also went up.
RBI Decides How Much to Retain
After the Bimal Jalan Committee report, the RBI has to keep its realised/cash reserves between 5.5 percent and 6.5 percent of its total assets. For total assets of Rs 70.69 trillion, the RBI can decide to maintain realised reserves between Rs 3.89 trillion and Rs 4.60 trillion.
The realised reserves at the end of 2022-23 stood at Rs 3.74 trillion (5.90 percent of total assets). The RBI can decide to transfer between Rs 146.37 billion to Rs 853.32 billion to the realised reserves to keep it within the band. To keep the realised reserves at 5.90 percent of AUM, the RBI would need to transfer Rs 427.37 billion.
It has to maintain the valuation reserves between 13.5 percent to 19 percent to keep the total reserves (valuation reserves and realised reserves) between the limit of 20 percent and 24.5 percent, as recommended by the Bimal Jalan Committee. At the end of 2022-23, the valuation reserves of Rs 11.26 trillion amounted to 17.75 percent of the total assets.
The valuation reserves are a balance sheet item. Depending upon what valuation the RBI decides for 31 March 2024, the valuation reserves and total assets (AUM) would be equally affected. It would have no implication for the surplus, its retention, and dividend to the government.
What Dividend Can the Incoming Government Expect?
Shaktikanta Das is a knave-operator. He is fully conscious that the new government, whether led by PM Modi for a third term or by someone from the Opposition, would have to be kept in good humour.
It can be expected that Das would give a go-by to the yo-yo pattern of dividend transfers for 2024-25. He will also be quite happy to allocate the least possible income to the realised/cash reserves.
Therefore, if the RBI decides to transfer only about Rs 15,000 - 25,000 crore to the realised reserves, the government can expect to receive between Rs 1.37 trillion to Rs 1.47 trillion as dividends out of the estimated surplus of Rs 1.62 trillion before it presents its regular Budget for 2024-25.
(The author is the former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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