RBI’s Record ₹2.69 Lakh Crore Dividend to Government for FY 2024–25 Explained

RBI pays big dividend to the government

For the financial year 2024-25, the Indian government will enjoy a government fiscal boost thanks to a substantial dividend payout from the Reserve Bank of India. Based on the surplus of FY23, the RBI has declared a dividend transfer of Rs 87,416 crore to the Central Government, which will be included as revenue in the Union Budget for FY25. This forms part of the broader RBI FY25 dividend, contributing to what is being termed a fiscal windfall India 2025.

Interestingly, this amount is a part of RBI’s much-discussed ₹2.69 Lakh Crore Record Dividend, which marks the highest-ever surplus transfer by the central bank, signaling a record RBI payout. Despite this, the RBI is adopting a more cautious stance with its contingency risk buffer, raising it from 5.50% to 6.00%, a move that reflects the evolving RBI surplus strategy to safeguard financial stability while still supporting government finances.

This balance between a sizeable dividend and enhanced risk buffers highlights RBI’s dual role in providing a government fiscal boost and maintaining a prudent approach towards risk management, reinforcing confidence in India’s economic governance as the country heads into FY25.

Table of Contents

1. RBI pays big dividend to the government
2. What Fuelled the Higher Dividend in 2025?
3. Significance of the Record Dividend
4. 2025 RBI Dividend vs Past—At a Glance
5. RBI dividends over the last 10 years
6. What enabled a higher dividend by the RBI?
7. Why higher RBI dividend is material

Evolution of RBI Dividend Transfers

Initial Dividend Policy: The Reserve Bank of India (RBI) traditionally transferred a modest portion of its profits as dividends to the Government of India, reflecting the central bank’s role in supporting the national treasury.

Growth with Economic Expansion: As India’s economy grew, the RBI’s earnings from its operations, including foreign exchange management and government securities, increased, leading to higher dividend transfers.

Changes in Accounting and Reserves: The RBI’s dividend transfers have been influenced by changes in accounting norms and the establishment of various reserves, such as the Contingency Fund, impacting the distributable surplus.

Recent Trends: Over recent years, RBI dividend transfers have seen fluctuations based on profit variations, government expectations, and RBI’s capital adequacy policies, culminating in record transfers by 2025.

What Fuelled the Higher Dividend in 2025?

Strong Economic Recovery: Post-pandemic economic revival boosted financial activities and RBI’s earnings from interest income and forex reserves, leading to higher profits.

Increase in Forex Reserves: A rise in India’s foreign exchange reserves, partly due to capital inflows and trade surpluses, enhanced RBI’s income from reserve management.

Higher Government Securities Holdings: Increased holdings of government bonds and securities by RBI resulted in greater interest income, adding to overall profitability.

Policy Decisions and Surplus Utilization: RBI’s strategic decision to optimize dividend payouts and release excess reserves contributed to the larger dividend transfer in 2025.

Significance of the Record Dividend

Boost to Government Finances: The record dividend provides the government with significant additional funds to support fiscal spending without increasing debt.

Confidence in RBI’s Financial Health: A higher dividend reflects RBI’s strong financial position and robust earnings, enhancing trust in the institution.

Market and Investor Sentiment: Such a record payout signals stability and strength in the Indian economy, positively impacting investor confidence.

Policy Flexibility: The dividend surplus gives the government more leeway in fiscal planning, potentially enabling more public investments and welfare programs.

2025 RBI Dividend vs Past—At a Glance

Highest Ever Payout: The 2025 dividend marks the largest transfer in RBI’s history, surpassing previous years’ records significantly.

Growth Trajectory: Compared to past dividends, the 2025 amount shows a steep upward trend reflecting improved profitability and reserve management.

Economic Context: Unlike earlier years, the 2025 dividend comes after a period of economic recovery and strategic reserve deployment by RBI.

Policy Shift Indicator: The 2025 dividend highlights a shift towards more aggressive surplus distribution policies, differing from the conservative payout approaches of the past.

RBI dividends over the last 10 years

In this table below, we capture the dividends (surplus) transferred by the RBI to the central government in each of the fiscal years.

Data Source: RBI

Let us first capture some of the highlights of the above table and why the RBI dividends to the central government have fluctuated over time.

• The table captures the dividend that the RBI has paid to the government in each of the fiscal years. However, in the Union Budget, the government gives a consolidated estimate of dividends receivable from PSU banks plus the RBI. For FY24, the government had pegged total dividends at Rs48,000 crore. With the RBI declaring Rs87,416 crore as dividend, the total dividend under the head would be more than twice the budget.
   
• In FY19, the dividend declared by the RBI to the government was a record Rs1.76 trillion. However, this included a one-time transfer from the RBI reserves to the government as per the recommendations made by the committee headed by Dr Bimal Jalan. Hence that is an exceptional flow of dividends in a particular year and strictly not comparable with other years.
   
• For FY22, which is the last year, the RBI dividend was substantially lower than the budgeted amount at just Rs30,307 crore. That is because the RBI took a decision to transfer over Rs1 trillion to the contingency reserve. This was meant to take care of the notional losses on the global bond portfolio held by the Indian government amidst rising interest rates and bond yields globally.

In a sense, the recent dividend announcement is much better than expected and is likely to boost government revenues. Reports of a higher dividend transfer were already out in the last few days with markets pegging RBI dividends anywhere between Rs80,000 crore and Rs160,000 crore. The dividend eventually may have been less than what the market desired but surely more than what was originally budgeted.

What enabled a higher dividend by the RBI?

How did RBI manage to pay such a hefty dividend to the government this year. There were several enabling factors. 

• In the previous year, the RBI had transferred only Rs30,307 crore to the government. This was sharply lower than expected as a large sum had been transferred to the contingency reserve. With rates almost topping out globally, the RBI sees less of bond depreciation risk in the Indian global bond portfolio. That allowed the RBI to be more liberal with dividend to the central government. There was also the confidence that most of the macro risks were already factored
   
• A big chunk of the RBI surplus came from dollar selling to defend the rupee. RBI normally sells dollars in the spot market out of its reserves to prevent the rupee from weakening beyond a point. In the first 11 months of FY23, the RBI had more than doubled gross dollar sales to $206.4 billion yoy. Since profits are calculated on historical cost of dollar purchase, profits on dollar sales were substantial.
   
• Apart from the dollar selling, the RBI also made a good deal of profits lending to banks in the repo market. This surplus came from lending to the local banking system after the rise in policy rates and liquidity drainage prompted Indian banks to borrow more from the RBI. The RBI earns an assured repo spread in such neutralization transactions.

A combination of domestic and global factors had allowed the RBI to end FY23 with a much bigger distributable surplus.

Why higher RBI dividend is material

For the central government, it is a revenue boost, since the additional dividend payout by the RBI is nearly 0.2% of GDP. It should help the government on two fronts. Firstly, it is estimated that the RBI has honoured its commitment of 6.4% fiscal deficit in FY23. The Union Budget has set 5.9% fiscal deficit target for FY24, and this additional revenue pool should make that journey simpler. 

Secondly, there have been apprehensions that India’s GDP growth may taper in FY24 due to a global slowdown and weak international trade. Year 2024 is an election year, so government would be cautious in disinvestments. This higher dividend payout gives room for the central government to sustain capex outlays and rural spending. That is surely encouraging.