Friday, 11 August 2017

RBI halves dividend payout in FY17

The Reserve Bank of India (RBI) has halved its yearly dividend transfer to the government at Rs 30,659 crore for financial year 2016-17, potentially upsetting the government’s fiscal math this year.

The government had budgeted to earn about Rs 58,000 crore as dividend from the RBI, and the lower payout may force the Centre to borrow more from the market, widening the fiscal deficit for 2017-18.

The lower dividend payout also ran counter to the widely held view that demonetisation and unreturned currency notes could lead to a windfall for the government through special dividends.

The RBI, which follows a July-June financial year, had paid Rs 65,876 crore as dividends to the government for 2015-16. The sharp drop in dividend payout has baffled analysts, amid expectations of a significant jump in the central bank’s dividend transfer to the Centre because of demonetisation.

In March, the Parliament enacted the Specified Bank Notes (Cessation of Liabilities) law. The government withdrew more than Rs 15 lakh crore from the system by outlawing old Rs 500 and Rs 1,000 notes.

While the final value of unreturned money has not been disclosed yet, the new law was aimed at enabling the RBI to write off unreturned amount from its balance sheet. The written-off amount, under the law, can be transferred to the government as a special dividend.

At the end of each financial year, RBI transfers the surplus generated from its functions to the government after accounting for any funds transferred to the contingency reserve or the asset development fund.

Over the past two years, the RBI transferred the entire surplus generated to the government via the dividend.
RBI's operations are not guided by a profit motive but providing adequate liquidity and foreign currency and maintaining orderly conditions in the market.

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