 "RBI's ₹2.69 trillion dividend to govt: Where does its money come from?")
The Reserve Bank of India (RBI) is expected to transfer a record ₹2.69 trillion as dividend to the central government for the financial year 2024-25 (FY25). This is a 27 per cent increase from the ₹2.1 trillion payout in FY24 and significantly higher than the ₹87,416 crore transferred in FY23.
The RBI makes an annual payout to the government from the surplus income it earns on investments and valuation changes on its foreign exchange holdings, including the dollar, and the fees it gets from printing currency notes. Here’s a closer look at how this process works, what drives these payouts, and what it means for the government.
From money to markets: What does RBI do?
The Reserve Bank of India is the country’s central bank and financial regulator. Its key functions include:
Issuing currency: Sole authority for currency notes (except ₹1 notes, issued by the Finance Ministry).
Government’s banker: Manages banking functions for the central and state governments, including public debt and monetary policy support.
Banker to banks: Acts as a regulator and lender for commercial banks.
Monetary regulator: Controls money supply, interest rates, and inflation.
Foreign exchange manager: Manages currency stability and exchange rates.
What is RBI’s dividend?
The RBI's dividend is the surplus it generates after covering operational expenses and setting aside risk provisions, transferred annually to the central government.
This dividend isn’t a corporate profit payout, as the RBI isn’t profit-driven. It reflects the excess funds left after the bank meets its public responsibilities.
Where does RBI’s money come from?
The RBI earns income from:
- Buying and selling bonds (open market operations)
- Managing foreign exchange reserves
- Holding rupee-denominated securities
While the RBI’s main focus is monetary stability, these operations create earnings that contribute to the annual dividend.
How is dividend amount decided?
The RBI’s payout is determined by the Economic Capital Framework (ECF), introduced in August 2019 after recommendations by the Bimal Jalan Committee. The ECF guides how much of the RBI’s surplus can be transferred to the government while keeping sufficient reserves for financial stability. This year, the framework’s formula may have been adjusted slightly, though the core Jalan principles remain intact.
What drove RBI’s FY25 record dividend?
The record dividend was driven by:
Active foreign exchange market operations: In 2024-25, the RBI sold $371.6 billion, more than double the $153 billion sold the previous year, stabilising the rupee and generating forex gains.
Rupee asset earnings: The RBI’s rupee security holdings grew to ₹15.6 trillion by March 2025.
Strong interest income: Even as falling G-sec yields dented mark-to-market gains, overall earnings remained robust.
What does it mean for government?
The record dividend gives the government more fiscal space. It’s expected to reduce the fiscal deficit by 20-30 basis points, potentially lowering it from 4.5 per cent of GDP to around 4.2 per cent. It also means that actual dividend income for FY26 may surpass the budget estimate of ₹2.56 trillion from the RBI and public sector entities.