The Reserve Bank of India’s board has approved a record surplus transfer to the central government of ₹2.68 lakh crore for the accounting year 2024-25.
This is higher than ₹2.1 lakh crore that the central bank paid as dividend to the Centre in 2023-24 and marginally higher than the ₹2.56 lakh crore dividend receipt that the government is expecting from the RBI and public sector banks.
This record surplus transfer is despite an increase in the contingent risk buffer (CRB) — a provision fund kept by the central bank for unforeseen contingencies — to 7.5 per cent of RBI’s balance sheet amid uncertainties because of geopolitics, currency volatility, the final blueprint of the India-US trade agreement and fresh tariff threats from US President Donald Trump to the European Union.
At the 616th meeting of the RBI, the central board of directors, chaired by RBI governor Sanjay Malhotra, reviewed the global and domestic economic scenario, including risks to the outlook.
“During accounting years 2018-19 to 2021-22, owing to the prevailing macroeconomic conditions and the onslaught of the Covid-19 pandemic, the board had decided to maintain the CRB at 5.50 per cent of the Reserve Bank’s balance sheet size to support growth and overall economic activity. The CRB was increased to 6 per cent for FY 2022-23 and to 6.50 per cent for FY 2023-24,” the RBI said on Friday.
“Based on the revised ECF (economic capital framework), and taking into consideration the macroeconomic assessment, the central board decided to further increase the CRB to 7.50 per cent.
“The board thereafter approved the transfer of ₹2,68,590.07 crore as surplus to the central government for the accounting year 2024-25,” the statement said.
Revised framework
At the 615th meeting of the central board on May 15, the RBI reviewed the existing ECF. The central bank on Friday said that while the broad principles of the earlier ECF were kept unchanged, certain changes were made with respect to monetary and financial stability risk.
“The range for buffers for monetary and financial stability risks has been widened to 5.0 ± 1.5 per cent of balance sheet size (vis-à-vis the existing range of 4.5-5.5 per cent). The central board may maintain it at any level between the range of 3.5-6.5 per cent based on its assessment of the prevailing macroeconomic conditions and other factors affecting the balance sheet of the RBI,” the central bank said in a statement.
“Consequently, the Contingent Risk Buffer, which includes buffers for monetary and financial stability risk, credit risk and operational risk, would be maintained in the range of 6.0 ± 1.5 per cent of balance sheet size (against the existing level of 6.5 per cent, with a lower bound of 5.5 per cent),” the statement said.
Fiscal comfort
The bonanza from the central bank, however, offers a ballast to the Centre to keep the fiscal deficit in check, while reducing the requirement of market borrowings.
“This surplus transfer is around ₹0.4-0.5 trillion (equivalent to 11-14 basis points of GDP) higher than the amount that was likely assumed in the FY26 union budget, implying an equivalent upside to non-tax revenues, which would provide some buffer to make up for a miss in taxes or disinvestment receipts, or higher-than-budgeted expenditure in the fiscal,” said Aditi Nayar, chief economist and head of research and outreach, Icra.
Additionally, the upward revision in the FY25 nominal GDP number suggests that despite a relatively lower growth of around 9.0 per cent in FY26 (as per Icra’s expectations) vis-a-vis the budgeted levels of 10.1 per cent, the fiscal deficit-to-GDP ratio can be contained at 4.4 per cent in FY26, while also accommodating a marginal fiscal slippage (to the tune of around ₹300 billion). This provides some comfort on the fiscal front,” said Nayar.
Below expectation
The surplus transfer amount, however, was below market expectations of around ₹3 lakh crore. During FY25, the RBI sold close to $400 billion as part of its foreign exchange operations, which was higher than the $153 billion sold in FY24. This had raised the hope of a bumper surplus to the Centre for the fiscal year, which did not happen.
“The RBI board has increased its contingent reserve buffer to 7.5 per cent, due to which this amount is lower than ₹3 lakh crore, which was the market expectation.
“This is a disappointment for the market, and we can expect some profit booking after the steep rally which we saw in the last 10 days,” said Murthy Nagarajan, head – fixed income, Tata Asset Management.