RBI May Cut Dividend To Govt. Due To High-Interest Cost

Rbi Records The Lowest Surplus Transfer To The Government Of Rs.30,307 Crore In FY2022 As Compared To FY2021- The Indian Express

The Reserve Bank Of India (RBI) is planning to cut the dividend to government due to the high-interest cost. During FY2022, RBI transferred the lowest surplus funds of Rs 30,307 crore to the government which is the lowest in the last 10 years. One of the biggest reasons behind it is the higher costs and interest rate required to maintain the surplus liquidity in the system.

In the financial year of 2018-19, the central bank of India recorded the highest dividend that helps the government to cope with the pandemic. Since the RBI, also maintains the funds of the various banks and pays them interest, the higher costs while managing liquidity may result in a cut down the dividend to the government.

With the collapsing world economy, RBI also looks after the depreciation cost of bonds and the Indian Rupee in the global market. Another factor that may affect the central bank’s decision is the repo( A repurchase agreement is a short-term borrowing for dealers in government securities) window. During the reverse repo, RBI takes funds from other banks. On the other hand, during the repo, RBI lends funds to other banks. 

Also Read: What to expect in Union Budget 2023-24?

Source of RBI’s Earning

It is equally vital to understand the various sources of RBI’s earnings that allow it to pay dividends to the government. Since the government’s financial activities largely depend on the Reserve Bank of India, the various sources of RBI’s income are as follows:

  • Returns got from the assets like foreign currency, bonds, and top-rated securities.
  • Interest in lending the funds to the local banks and financial institutions.
  • Commission received from managing the funds of the borrowed money of central and state governments.

The decision of cutting down the dividend to the government may also impact the government’s future policies. What’s your view on this decision of the RBI?

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