Sharp jump in foreign exchange income boosts RBI dividend for FY2023

While income for the year increased by 47.06 per cent to its highest ever at Rs 2.65 lakh crore , the expenditure increased by 14.05 per cent. The year ended with an overall surplus of Rs 87,416.22 crore that was transferred to the government in the form of dividend as against Rs 30,307.45 crore in the previous year, RBI’s latest annual report released on Monday said. RBI’s surplus transfer was more than the budgeted amount of Rs 48,000 crore for banking sector

” The substantial jump in dividend is driven by profits made on foreign exchange transactions worth foreign exchange transactions ( Rs 103300 crore), due to large gross dollar sales made in FY23″ said Gaura Sengupta, India economist, IDFC First Bank. Based on RBI intervention data, gross dollar sales amounted to $212.6bn in FY’23 compared to $96.7bn in FY’22. In addition, higher interest income (INR1.3trn) on its holdings of domestic and foreign securities has more than offset losses on its liquidity operations.

The size of the balance sheet increased 2.50 per cent 2022 to Rs 63.44 lakh crore as on March 31, 2023. The increase on the asset side was due to rise in foreign investments, gold, and loans and advances by 2.31 per cent, 15.30 per cent and 38.33 per cent, respectively, RBI said.
On the liability side, the expansion was due to increase in notes issued, revaluation accounts and other liabilities by 7.81 per cent 20.50 per cent and 79.07 per cent, respectively. Domestic assets constituted 27.69 per cent while the foreign currency assets and gold (including gold deposit and gold held in India) constituted 72.31 per cent of total assets as on March 31, 2023 as against 28.22 per cent and 71.78 per cent, respectively, as on March 31, 2022. Based on RBI intervention data, gross dollar sales worth US$212.6bn in FY23 v/s US$96.7bn in FY22.”From a fiscal perspective the dividend represents additional revenue of 0.2% of GDP. However, it may be too early to say with certainty that FY24 fiscal deficit will undershoot the 5.9% GDP target ” said Sengupta. ” This is because the sharp reduction in inflation (in particular WPI inflation) implies that FY24 nominal GDP growth could be lesser than what is assumed in the Union Budget of 10.9% “.IDFC Bank’s model indicates than nominal GDP growth could be ~9%. This implies that tax collection growth could be lower than what is assumed in Budget Estimate. There is also the risk that disinvestment proceeds could undershoot Budget Estimate. Building-in all these factors as well as higher than budgeted dividend, we expect FY24 fiscal deficit to be at target levels of 5.9% of GDP.The higher RBI dividend is a fiscal windfall of over Rs 500bn (0.17% of GDP) for the government, but it is likely to be neutralized by an equal amount of slippage on the fertilizer subsidy. FY24 fiscal dynamics have a lot of moving parts – with a potential undershoot of nominal GDP growth, lower tax buoyancy, an overly tight budget for revex and ambitious capex targets, according to Aurodeep Nandi, India economist at Nomura Securities. As such, the risk to the FY’24 fiscal deficit target of 5.9% of GDP is still towards slippage, he said.

Provisioning (Rs 1309bn in FY’23 v/s Rs1147bn in FY’22) has been increased to 23.7% of total assets (economic capital) v/s 21% in FY’22. The recommended range is between 20.8% to 25.4% of total assets.

From a liquidity perspective, the higher dividend will support government expenditure in the near-term. As of May 19, government cash surplus is tracking at INR1.4tn, which is likely to improve post the transfer of the dividend to the centre.