Reserve Bank Of India (RBI) Set To Oblige Government’s Demand

The Reserve Bank of India (RBI) will pay Rs 13,000 crore more in dividend to the Centre.

The Reserve Bank of India (RBI) will pay Rs 13,000 crore more in dividend to the Centre.

Agency reports said the central bank had agreed to a request of the government. There was, however, no official confirmation from the Reserve Bank of India.

The Centre, which is in the process of recapitalising state-run banks to the tune of Rs 2.11 lakh crore, had in November sought Rs 13,000 crore from the RBI. Economic affairs secretary Subhash Chandra Garg had then said the government did not seek any special dividend but only asked for the transfer of the surplus with the Reserve Bank of India.

While the Reserve Bank of India follows a July-June accounting year, for the year ended June 2017 it had made a provision of Rs 13,140 crore and had transferred it to a contingency fund.

This was a break from the usual practice as the RBI had not made any transfers to the fund in the three preceding years. The government had sought the amount, which it felt was the surplus earned by the RBI, but was not distributed.

The contingency fund represents the amount set aside on a year-to-year basis to meet unexpected and unforeseen situations, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities enjoined upon the RBI.

It may be noted that the government’s move to extract cash from the central bank was opposed by the Reserve Bank Employees Union last year.

The All-India Reserve Bank Employees Union had then said that the government must refrain from its “pressure tactics and double-dealing”.

In 2016-17, the RBI had paid a lower dividend to the government. In early July, the RBI had transferred Rs 30,659 crore of its surplus to the Centre, which was almost 50 per cent lower than the previous year’s amount of Rs 65,876 crore.

Demonetisation effect

The payout dropped because of huge expenses incurred towards printing new currency notes and paying interest to banks by way of reverse repo after the demonetisation.

In the budget for 2017-18, the government had estimated a dividend of about Rs 75,000 crore from the RBI and public sector banks. The RBI’s share in this was expected to be Rs 58,000 crore.

Source; TT