RBI to Pay Govt $11.3 Billion as Dividend

The Reserve Bank of India said on Thursday it will pay the government a dividend of Rs 457.2 billion for its 2006/07 fiscal year, higher than the previous year’s Rs 84.04 billion payment.

The 2006/07 dividend includes Rs 343.1 billion of profit that the Reserve Bank of India (RBI) made from the sale of its 59.73 per cent stake in State Bank of India to the government in June.

Excluding the SBI sale proceeds, the dividend was Rs 114.1 billion, the central bank said.

The accounting of the payment for the SBI stake sale led to a spike in the federal fiscal deficit in June, but the government has said the overall transaction should be budget neutral.

The April-June deficit was Rs 1.12 trillion, or 74.5 per cent of the full-year target of Rs 1.51 trillion, government data showed.

Dealers said the transfer could boost surplus cash in the system if the government used the dividend to step up spending.

The funds could also be used to repay some of the government’s short-term borrowings from the RBI, which totalled Rs 201.99 billion on July 27.

“I expect a further easing of liquidity in the market in the coming days, and the RBI may have to take steps such as issuing more market stabilisation bonds or even a CRR (cash reserve ratio) increase to drain liquidity,” said S P Prabhu, head of fixed income at IDBI Gilts.

The RBI’s fiscal year runs from July 1 to June 30, while the government’s runs from April 1 to March 31.

As quoted on TheEconomictimes.