Government To Push RBI To Put In Place A New Dividend Policy
People Outside the RBI Headquarters in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

Government To Push RBI To Put In Place A New Dividend Policy

The government wants the Reserve Bank of India to define a policy governing dividends, a government official told reporters. The government nominees on the RBI board are likely to bring up this issue at the central bank’s board meeting, the official added.

The comments come against the backdrop of a debate between the government and the RBI on the amount of dividend paid last year. The debate may lead to the RBI re-looking at the dividend policy, said the official quoted above.

The news was first reported by newswire Cogencis on Tuesday morning.

For the RBI’s annual year ending July 2017, the central bank paid a lower dividend of Rs 30,669 crore due to the costs associated with demonetisation. The government, however, argued that the dividend would have been higher if the RBI had not transferred funds to its contingency reserves.

For the ongoing financial year, the government convinced the RBI to transfer an interim dividend of Rs 10,000 crore before the government’s annual accounts for 2017-18 were closed. This transfer of a rare interim dividend by the RBI was confirmed by Subhash Garg, secretary in the department of economic affairs to BloombergQuint in an interview in April. The RBI has not disclosed the transfer of this interim dividend.

Government To Push RBI To Put In Place A New Dividend Policy

Over the years, a number of committees have weighed in on the RBI’s balance sheet and its dividend policy.

A 2013 committee headed by YH Malegam had questioned the adequacy of reserves held by the RBI. It had recommended that each year the RBI transfer 15 percent of the original cost of fixed assets to the prevailing asset development reserve. The committee had also recommended that the contingency reserves held by the RBI be built up.

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

Data from the RBI annual reports shows that for financial years 2013-14, 2014-15 and 2015-16, the RBI did not transfer any funds to its reserves. This meant that the entire net disposable income was passed on to the government in the form of a dividend. In 2016-17, the RBI chose to transfer Rs 13,000 to the contingency fund and transferred Rs 30,659 crore to the government.

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