Govt wants RBI to frame dividend policy; to amend RBI Act

Govt wants RBI to frame dividend policy; to amend RBI Act

This moves comes in the wake of differences between North Block and Mint Road over the dividend that the Centre received from the RBI in 2017-18.

The government is nudging the Reserve Bank of India (RBI) to formalise a policy governing the yearly dividends it pays to the Centre.Any such policy is likely to be given statutory backing through amendments in the RBI Act.This moves comes in the wake of differences between North Block and Mint Road over the dividend that the Centre received from the RBI in 2017-18.

A senior government official said that the government’s nominees to the RBI board – economic affairs Secretary Subhash Garg and financial services secretary Rajiv Kumar – will take this issue up in the next RBI board meeting.The planned amendments to the RBI Act will mandate the central bank to transfer a certain portion of its annual profits after making provisions for bad debt, depreciation, and other items. RBI’s views on the matter are being sought, the official said. Unlike the Centre’s April-March calendar, the RBI follows the July-June financial year.

For its financial year 2016-17, the RBI had transferred Rs 306 billion of its surplus to the government, less than half of the Rs 659 billion it transferred a year earlier. In the Union Budget for 2017-18, the government had received a dividend of Rs 749 billion from the RBI and other nationalised banks. Of this, the RBI’s share was expected to be Rs 580 billion.

The Centre asked RBI for an additional Rs 130 billion to take the total surplus received for the year to Rs 430 billion. Throughout the latter half of 2017-18, finance ministry officials remained confident that the amount would be transferred, even as they battled with the prospect of a missed fiscal deficit target in a year which saw disruption due to the implementation of the goods and services tax.

The RBI had held out Rs 130 billion for its contingency reserves. However, on March 27, four days before the end of fiscal year 2017-18, it transferred Rs 100 billion extra to the government.Partly from lower dividends from state-owned banks and other enterprises, and a number of other reasons, the fiscal deficit target for FY18 was revised from 3.2 per cent of the gross domestic product to 3.5 per cent. Total dividend receipts from state-owned banks and enterprises was revised downwards to Rs 1.06 trillion from Rs 1.42 trillion.

There has been extensive debate in the past over the RBI’s dividend policy. In 2013, a panel led by RBI board member YH Malegam had questioned the adequacy of reserves held by the central bank. It had recommended that the contingency reserves held by the RBI be built up.

More recently, in its annual report for 2015-16, the RBI had said it had prepared a “draft economic capital/provisioning framework to assess its risk-buffer requirements in a structured and systematic manner.” This framework was to be used for determining the surplus transferable each year by the RBI to the Centre.

1.Govt asks RBI to firm up dividend policy
2.Govt seeks to amend RBI Act to provide legal backing to proposal
3.If amendments push through, RBI will be bound to pay above a certain amount every year
4.Govt’s nominees to RBI board to take up issue in next meeting
5.In 2017-18, differences rose between the two on the surplus paid

The Business Standard, New Delhi, 30th May 2018

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...

CA Online

Search This Blog