In a surprising and bullish projection, global investment bank Citi has forecasted that the Reserve Bank of India (RBI) could transfer a record-breaking dividend of Rs 3.5–4 lakh crore to the Government of India for FY25. This is nearly double the Rs 2.1 lakh crore that has been budgeted by the Centre in the Union Budget. If it materializes, this windfall would significantly alter the Centre’s fiscal arithmetic and could even influence bond yields, interest rates, and market sentiment.
What’s Driving the Jump in RBI Dividend?
1. Record Forex Transaction Gains
The RBI actively engages in buying and selling foreign exchange to manage volatility and maintain rupee stability. With high volumes of forex interventions in FY24, the central bank has earned record profits from these transactions. Citi believes that these profits could be one of the largest contributors to the sharp rise in surplus.
2. Robust Investment Income
RBI holds a large portfolio of foreign assets and domestic bonds. Rising global interest rates, particularly on US treasuries, have improved RBI’s return on foreign reserves. Additionally, domestic bond yields in FY24 also offered decent returns. Together, this has boosted RBI’s overall income significantly.
Budget vs. Citi Projection: The Big Gap
| Estimate Source | Dividend to Govt (? lakh crore) |
|---|
| Union Budget FY25 | 2.10 |
| Citi Forecast | 3.50–4.00 |
This difference of Rs 1.4 to Rs 1.9 lakh crore could have major implications for the government’s fiscal deficit, borrowing plan, and capital expenditure capacity.
Fiscal Implications: Windfall for the Government
If the RBI ends up transferring Rs 4 lakh crore, the government could use the extra funds in various ways:
Lower the fiscal deficit target faster than expected.
Reduce market borrowings, easing bond yields.
Boost capital expenditure in infrastructure or rural spending.
Or even cut fuel taxes to tame inflationary pressures.
This gives the government flexibility, especially in a post-election year where economic priorities may realign.
Impact on Markets and Bonds
This potential bumper dividend could:
Lead to lower G-sec yields as government borrowing reduces.
Improve liquidity in the banking system.
Be viewed positively by equity markets, especially banking and infra sectors.
Offer comfort to rating agencies on India’s fiscal credibility.
Is This Sustainable?
While FY25 may be exceptional, experts caution that such a high surplus is not the norm. RBI’s profits are non-tax revenues and fluctuate based on market conditions, forex volatility, and global interest rate cycles. The government should avoid making long-term spending plans on the back of a one-off windfall.
Conclusion
If Citi’s prediction proves accurate, the RBI could deliver the largest-ever dividend to the exchequer, significantly reshaping fiscal calculations for FY25. While the market will cheer this development, policymakers will need to wisely allocate this bounty without building unsustainable expectations.
Written by Indira Securities SEBI Registered with 30 plus years of experience in Stock Market