RBI’s $13.6 Billion Payout to Ease India Government Finances – BNN

(Bloomberg) — India’s central bank approved paying a higher-than-expected 991.2 billion rupees ($13.6 billion) as dividend to the government, providing relief to Finance Minister Nirmala Sitharaman at a time when the pandemic has strained public finances.

The money amounts to 95% of the total 1.04 trillion rupees budgeted by the government as dividend from the Reserve Bank of India and other state-owned banks and companies in the fiscal year that began April 1. Of the total, Sitharaman had only penciled in 535 billion rupees as the share of RBI and other banks.

The transfer was approved by the RBI’s central board, comprising of central bankers and government nominees. Yield on the benchmark 10-year bond eased marginally after the dividend announcement and was down 1 basis point to 5.96%.

“The board in its meeting reviewed the current economic situation, global and domestic challenges and recent policy measures taken by the Reserve Bank to mitigate the adverse impact of the second wave of Covid-19 on the economy,” according to a statement from the RBI.

The RBI transferred 571.3 billion rupees last year, but the numbers aren’t comparable because of a change in accounting year. The central bank recently switched to an April-March fiscal year from July-to-June previously, and the payment this time around is for a nine-month period.

The central bank pays dividends to the government every year from surplus it generates from market operations, investments and printing of currency. With the pandemic disrupting economic activity and possibly hurting tax revenue, the money will help Sitharaman keep budget deficit close to this year’s targeted 6.8% of gross domestic product.

“This higher payout will give some cushion to government finances against likely slowdown in tax revenues and privatisation proceeds due to the Covid second wave,” said A. Prasanna, chief economist at ICICI Securities Primary Dealership Ltd.

Sitharaman still needs to achieve the 1.75 trillion rupee asset-sales target to avoid missing the deficit target.

The finance minister had previously said the government would look beyond fiscal deficits to revive Asia’s third-largest economy, which is currently grappling with the world’s worst Covid-19 outbreak. A spike in virus cases prompted several states to impose localized lockdowns, which in turn forced many factories to suspend operations and eroded incomes in an economy driven by domestic consumption.

The government has in recent years been pressuring the central bank to increase its payouts, which resulted in the RBI transferring a record 1.76 trillion rupees two years ago. The central bank is still required to keep at least 5.5% of its capital as risk buffer.

(Updates with details throughout)

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