RBI forex income likely higher, set to push dividend payout to central government

The central bank's income from foreign exchange reserves deployment in FY25 appears higher than the previous year, influenced by sustained elevated US treasury yields throughout several months, based on recent RBI data quoted by the Economic Times.This income, stemming from interest earnings on foreign assets, could contribute to an increase in the central bank's dividend payout to the government, which is already anticipated to be higher this year thanks to robust commissions from forex operations and interest income from government securities. However, analysts noted that accurately predicting the transfer amount could be challenging due to the complexity of provisioning exercises.During April-December 2024, interest earnings on RBI's foreign currency assets showed a 40 per cent increase to $17 billion compared to the previous year, as revealed in the central bank's recent breakdown of invisibles data.Historical assessment of RBI's financial statements indicates that forex deployment earnings constitute under 15 per cent of total income. Additional revenue streams include commissions from currency market management through dollar transactions, returns on government securities holdings, and income from liquidity operations."We expect the RBI dividend to be supported by forex intervention as gross dollar sales have been substantial. Other sources of income will be interest income on government security and foreign currency assets," said Gaura Sengupta, chief economist at IDFC First Bank. "On the expenditure side, how much provisioning is done can be a key variable," he added.The central bank is expected to declare its FY25 surplus funds transfer to the government in late May, following last year's Rs 2.1 lakh crore payment, which exceeded expectations twofold.As of March 28, 2025, RBI's economic capital stands at 28.5 per cent, above the recommended range of 20.4-25.4 per cent. Despite this, experts suggest higher provisioning might be necessary due to balance sheet expansion, driven by the bank's liquidity infusion into the banking system following two interest rate reductions.