The board of the Reserve Bank of India met Thursday and considered a change to the central bank’s capital structure, a move that could potentially affect how much cash it transfers to the government every year.
Governor Sanjay Malhotra chaired a meeting of the board, which “reviewed the economic capital framework” of the RBI, the central bank said in a statement.
The current policy requires the RBI to hold 5.5%-6.5% of its balance sheet as capital reserves. A reduction in the ratio would allow the central bank to transfer more of its surplus to the government, helping it ease its fiscal pressures. The RBI is expected to pay a record dividend of as much as 3.5 trillion rupees ($41 billion) to the government this year, helping to offset a tax revenue shortfall.
Point of Friction
In the past the government had argued the central bank was holding more capital than it needed, leading to tensions between the RBI and the Finance Ministry. In 2018, a committee headed by former RBI governor Bimal Jalan put a cap on the savings the central bank must hold as a risk buffer, and suggested a periodical review every 5 years. Those recommendations were applicable until June 30, 2024.
The RBI pays dividends to the government every year from the profit it makes off its investments and printing of notes and coins. The government estimated in its budget in February inflows of 2.56 trillion rupees from the RBI and financial institutions in the fiscal year ending in March 2026.
