The Reserve Bank of India‘s annual dividend will overshoot budgeted estimates by about 0.15-0.2 per cent of GDP, jumping to about Rs 80,000-95,000 crore, according to a research report by Emkay Global Financial Services.

This will be about 2.4x of the estimated budgeted amount of Rs 38,000-40,000 crore, and a tad lower than the all-time high of Rs 99,000 crore seen in FY21. The lows of Rs 30,300 crore in FY22 are not comparable (9M only due to change in the accounting year).

FX transactions, interest income

This huge surplus will be largely helped by net profit emerging from massive FX (foreign exchange) transactions (sales), as well as the somewhat higher interest income on treasury/ sovereign holdings abroad and back home, according to a report put together by Madhavi Arora, Lead Economist, and Harshal Patel, Research Associate.

However, a part of the income gain will be countered by nearly-same provisioning needs amid MTM (mark-to-market) losses on foreign assets – further weighed down by the rupee’s depreciation of about 7 per cent during the year – in the Contingency Fund (CF).

“Nonetheless, economic capital will likely be healthier at about 23 per cent of assets despite the slowest balance-sheet growth since demonetisation (about 2 per cent),” the Emkay Research team said.

Handy fiscal buffer

This fiscal buffer would be handy, especially as tax buoyancy may undershoot budget estimates, they added. Even so, the Emkay team does not see the fiscal deficit missing the target in FY24.

Separately, frictional liquidity will likely ease in the near term, with dividend inflows and seasonal moderation in currency demand.

However, liquidity conditions are likely to remain tight, requiring RBI to add durable liquidity in the form of OMOs (open market operations) worth Rs 1.5 lakh crore in H2FY24.

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