According to recent updates, the Reserve Bank Of India approved Rs. 2.11 Lakh Crore in dividends, which is said to be the highest dividend payout to the government. Everyone is curious to know how exactly the RBI did this. The central bank almost doubled the dividend it paid. During the dividend payout, several banks faced losses. Which reasons made it possible for the RBI to increase its dividend? Let us find out below.
Reserve Bank of India increases the dividend it pays to the Government of India, making it the highest-ever dividend to be paid to the government. The Wednesday report brought out Rs. 2.11 Lakh Crores as the total value of the dividend announced. The situation is a mixture of all of these, as several banks are dealing with losses and have negative equity. However, the central bank was still able to manage such a dividend. The experts say the main reason is RBI’s increased involvement in the foreign exchange and money markets. Even after that, we can classify the two main reasons behind the RBI being able to announce its highest dividend. These are as follows:
The foremost reason is the wise investments of the RBI. The central bank made a total investment of $469 Billion, divided into several risk-free sovereigns. RBI earned a return of 4% on the $250 billion invested in US Treasuries, which was higher than the previous return. A central bank makes treasury investments to minimize the fiscal deficit. Thus, it helps maintain stability.
Another reason is the increase in the interest earned by commercial banks. The RBI gives short-term loans to commercial banks in a liquidity starvation situation. However, the repurchase agreements repo increased. As the market was in a deficit situation, the bank also invested in the US Treasury. The previous year had Surplus Liquidity in 2023. In conclusion, The central bank has received more interest from commercial banks this year.
Reserve Bank of India has also sold dollars. A central bank sells dollars when there is increased pressure on a currency. Thus, the bank sold some dollars from the foreign exchange reserves in Ruppee’s support. These dollars are sold at a higher price, leading to the bank’s profit. The central bank first sold some dollars and later brought a few back, helping to create a net supply as well.