Budget 2024: Govt may increase dividend target to Rs 70,000 crore for RBI, banks, FIs
The government had set a target of receiving a dividend of Rs 48,000 crore from the Reserve Bank of India (RBI), public sector banks, and financial institutions in 2023-24.
- Jan 30, 2024,
- Updated Jan 30, 2024 5:03 PM IST
The Centre may be looking at increasing the dividend target to Rs 70,000 crore for RBI, banks and financial institutions (FIs) after reaping rich dividends from the Reserve Bank in the current fiscal. Under the Interim Budget, which will be presented in the Lok Sabha on February 1 by Finance Minister Nirmala Sitharaman, the government is expected to peg receipts from dividends from financial institutions at a much higher level than Rs 48,000 crore, news agency PTI reported.
Public sector banks and financial institutions have reported strong quarterly numbers in the current financial year. As a result, the dividend payout for the upcoming year is expected to be higher than the current year.
The government had set a target of receiving a dividend of Rs 48,000 crore from the Reserve Bank of India (RBI), public sector banks, and financial institutions in 2023-24. However, this target was greatly exceeded when the Reserve Bank transferred a surplus of Rs 87,416 crore to the central government for 2022-23.
The amount is higher than both the amount transferred in 2022-23 (Rs 30,307.45 crore) and the budgeted amount under Dividend/Surplus transfer of Reserve Bank of India, Nationalised Banks and Financial Institutions in the Union Budget 2023-24 (Rs 48,000 crore).
In the last fiscal year, the government raised Rs 40,953 crore from the central and public sector financial institutions. The increased dividends from banks and financial institutions, along with higher tax collection, will contribute to achieving the fiscal deficit glide path.
Under the fiscal consolidation roadmap, the government aims to reduce the fiscal deficit to below 4.5% by 2025-26 from an estimated 5.9% of GDP in 2023-24.
The government wants to bring down the fiscal deficit to 5.4% in the next financial year beginning April 1, 2024.
Earlier this month, the central bank said banks with net non-performing assets (NPA) ratio less than 6% and capital adequacy above the minimum regulatory thresholds for the past three financial years should be eligible to declare dividends.
In a draft circular, RBI said a revised the graded dividend payout policy will be floated with a higher ceiling on dividend payment to 50% from 40% earlier. The lower the net NPA ratios, the higher would be the dividend payout.
The central bank said the guidelines (on dividend declaration by banks and remittance of profits to head office by foreign bank branches in India) have been reviewed in light of the implementation of Basel III standards, the revision of the prompt corrective action (PCA) framework, and the introduction of differentiated banks.
According to the draft guidelines, commercial banks, small finance banks, payments banks, local area banks, and regional rural banks will have to meet the “applicable” regulatory capital requirement (capital to risk-weighted assets ratio/CRAR) for each of the last three financial years, including the financial year for which the dividend is proposed.
Higher payout ratios would boost earnings of the government, which holds majority shares in public sector banks. The government owns over 90% in several of them.
The net NPA eligibility rule, proposed to be tightened from the previous 7%, won't hurt the payout ratio as most lenders have managed to improve their asset quality over the past few years, the RBI circular said.
Also read: Interim Budget 2024: 5 challenges for Indian economy listed in mini economic survey
The Centre may be looking at increasing the dividend target to Rs 70,000 crore for RBI, banks and financial institutions (FIs) after reaping rich dividends from the Reserve Bank in the current fiscal. Under the Interim Budget, which will be presented in the Lok Sabha on February 1 by Finance Minister Nirmala Sitharaman, the government is expected to peg receipts from dividends from financial institutions at a much higher level than Rs 48,000 crore, news agency PTI reported.
Public sector banks and financial institutions have reported strong quarterly numbers in the current financial year. As a result, the dividend payout for the upcoming year is expected to be higher than the current year.
The government had set a target of receiving a dividend of Rs 48,000 crore from the Reserve Bank of India (RBI), public sector banks, and financial institutions in 2023-24. However, this target was greatly exceeded when the Reserve Bank transferred a surplus of Rs 87,416 crore to the central government for 2022-23.
The amount is higher than both the amount transferred in 2022-23 (Rs 30,307.45 crore) and the budgeted amount under Dividend/Surplus transfer of Reserve Bank of India, Nationalised Banks and Financial Institutions in the Union Budget 2023-24 (Rs 48,000 crore).
In the last fiscal year, the government raised Rs 40,953 crore from the central and public sector financial institutions. The increased dividends from banks and financial institutions, along with higher tax collection, will contribute to achieving the fiscal deficit glide path.
Under the fiscal consolidation roadmap, the government aims to reduce the fiscal deficit to below 4.5% by 2025-26 from an estimated 5.9% of GDP in 2023-24.
The government wants to bring down the fiscal deficit to 5.4% in the next financial year beginning April 1, 2024.
Earlier this month, the central bank said banks with net non-performing assets (NPA) ratio less than 6% and capital adequacy above the minimum regulatory thresholds for the past three financial years should be eligible to declare dividends.
In a draft circular, RBI said a revised the graded dividend payout policy will be floated with a higher ceiling on dividend payment to 50% from 40% earlier. The lower the net NPA ratios, the higher would be the dividend payout.
The central bank said the guidelines (on dividend declaration by banks and remittance of profits to head office by foreign bank branches in India) have been reviewed in light of the implementation of Basel III standards, the revision of the prompt corrective action (PCA) framework, and the introduction of differentiated banks.
According to the draft guidelines, commercial banks, small finance banks, payments banks, local area banks, and regional rural banks will have to meet the “applicable” regulatory capital requirement (capital to risk-weighted assets ratio/CRAR) for each of the last three financial years, including the financial year for which the dividend is proposed.
Higher payout ratios would boost earnings of the government, which holds majority shares in public sector banks. The government owns over 90% in several of them.
The net NPA eligibility rule, proposed to be tightened from the previous 7%, won't hurt the payout ratio as most lenders have managed to improve their asset quality over the past few years, the RBI circular said.
Also read: Interim Budget 2024: 5 challenges for Indian economy listed in mini economic survey