RBI's Rs 2.1 lakh crore payout: When it all adds up to deliver a windfall to govt
Reserve Bank of India (RBI) had private shareholders, as it had before 1949, they would have been a happy lot on Wednesday evening. The old lady of Mint Street will deliver its bounty from the financial markets — by far the most generous payout it has ever made — to New Delhi. At a time when some of the central banks in the advanced world have reported losses and negative equity, RBI will hand over a dividend cheque of more than ₹2.1 lakh crore to its sole owner, the government.
However, the optics of the event — a monetary authority headed by a former bureaucrat making a huge transfer to a macho government towards the end of a long, noisy general election — masks a more prosaic truth. The payout number is a function of local and offshore currency and money markets, coupled with RBI's active intervention in the foreign exchange market.
FY24 WAS DIFFERENT
What contributed to RBI's higher earnings? First, the higher returns from $469 billion investments in sovereign securities of the first-world governments — of which US treasury bills account for about $250 billion. The interest income from these risk-free bonds (which are part of the forex reserves kitty along with gold which earns nothing), has been distinctly higher in FY24 (at almost 4% returns from US T-bills) compared with the previous year.
Second, the interest earned from short-term lending to liquidity-starved commercial banks — a transaction commonly called repo (or repurchase agreement). Unlike in FY23 when there was 'surplus liquidity' in the local
