RBI dividend windfall or fallen

The Reserve Bank of India’s dividend to the Government of India for 2016-17 is Rupees 30, 659 crores or Rupees 306.590 billion or USD4.7446bn as per the closing exchange rate of USDINR on June 30, 2017 (USDINR = 64.617547 as per x-rates.com).

The government had budgeted for a total banking sector dividend of INR74,901 crores (749 billion Indian rupees) for 2017-18, of which supposedly at least INR58,000 crores (580 billion Indian rupees) was expected out of Reserve Bank of India, according to this article in ‘Business Standard’. In 2016-17, the government had a revised estimate of INR76,171.80 crores (761.7 billion Indian rupees) under this header.

RBI dividend

Source: Business Standard [Link]

The article says that the dividend was lower because RBI incurred cost due to the note-ban exercise of the Government of India – printing of new notes, interest paid to banks on excess liquidity deposited with it.

The lower dividend has implications for the fiscal arithmetic for 2017-18. Apart from that, the government also expected a fiscal windfall from the cancelled rupee notes from the ‘note ban’ exercise although, according to the BS article, Urjit Patel, RBI Governor, had ruled out paying a ‘windfall’ dividend because he had reckoned (correctly) that the cancelled notes remained the liability of the Reserve Bank of India.

Tallying up the costs of demonetisation vs. benefits would become an embarrassing exercise for the Government, one would presume.

(ht Andy Mukherjee for alerting me to this story early on Friday morning)


2 thoughts on “RBI dividend windfall or fallen

  1. Dear Sir,

    These two research papers from RBI under new series – Mint Street Memos (MSM) deserve your attention. MSM series of documents that are in the form of brief reports and analysis on contemporary topics, prepared by the staff of RBI and Centre for Advanced Financial Research and Learning (CAFRAL), or drawn from one of the recent publications of the Bank.

    Under this series they published two research document

    1) Demonetization and Bank Deposit Growth – https://rbidocs.rbi.org.in/rdocs/MintStreetMemos/Demo12082017.pdf

    Basis of this research – (i) the deposit growth in the corresponding period of 2015-16; (ii) the average
    growth recorded during the corresponding periods of the previous two years (i.e., 2014-15 and
    2015-16); and (iii) the growth estimated using ARIMA model.

    Conclusion of this report- “In nominal terms, excess deposits accrued to the banking
    system due to demonetisation are estimated in the range of ` 2.8-4.3 trillion. The unusual cash
    deposit in specific accounts, which are usually less active, is estimated to be in the range of `
    1.6-1.7 trillion.” ( This figure was quoted by PM Modi in his I-day speech as Noteban success).

    2) Fictionalization of savings Into non-banking Financial Intermediaries – https://rbidocs.rbi.org.in/rdocs/MintStreetMemos/FinSav12082017.pdf


    1. I had downloaded them already. I have seen the basic information of these papers reported in a Bloomberg Quint article. But, the bigger prize is their translation into loans for productive investments and the kick-starting of an investment cycle in the country. That is still missing, partly because the underlying balance sheet problems in banks and borrowers is unresolved and partly because GST has happened, bringing fresh uncertainty. Lastly, there is also the threat of bankruptcies now for businesses. All these may be for the long-term good but, in the short-run (one to two years), they increase uncertainty for businesses.


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