SBI: Bumper dividend transfer may reduce central government fiscal deficit to 4.2 percent of GDP

SBI: Bumper dividend transfer may reduce central government fiscal deficit to 4.2 percent of GDP Theindiaprint | 24/05/2025 13:27:30

New Delhi: According to a State Bank of India assessment, the Reserve Bank of India’s massive dividend transfer might reduce the central government’s fiscal deficit by 20 to 30 basis points from the planned level of 4.5% to 4.2% of GDP.

A dividend revenue of Rs 2.56 lakh crore from the Reserve Bank and public sector financial institutions was anticipated in the Union Budget for 2025–2026.

The real dividend income, however, will be far larger than planned due to the most recent transfer from the RBI.

According to the study, the government now has greater financial flexibility to either lower its deficit or increase spending in important sectors.

“We anticipate that the fiscal deficit will decrease by 20 to 30 basis points from the budgeted level to 4.2% of GDP,” said SBI. On the other hand, it will allow for more expenditure.

It said that in addition to improving the government’s financial standing, the massive dividend transfer also provides assistance in controlling the yield curve in the face of international financial instability. Additionally, it increases the RBI’s contingency risk (CR) cushion, strengthening its financial stability.

The factors behind the RBI’s significant excess were further explained in the report. Interest revenue from the central bank’s holdings of both domestic and international assets, as well as its activities via the liquidity adjustment facility (LAF), were the main drivers of its surplus.

The RBI was in absorption mode under the LAF from June 3 to December 13, 2024, suggesting that the banking sector had surplus liquidity. The liquidity pattern, however, changed from mid-December, and the RBI started adding money to the system until the end of March 2025.

System liquidity returned to surplus by March 31, 2025, with a value of Rs 1.2 lakh crore. Between December 16, 2024, and March 28, 2025, the average liquidity shortfall was Rs 1.7 lakh crore.

With the help of open market operation (OMO) purchases, dividend transfers from the RBI, and a forecasted balance of payments (BOP) surplus of USD 25–30 billion, durable liquidity is anticipated to continue to be in excess in FY26.

According to SBI’s research, the government has the chance to either fulfill its fiscal consolidation targets earlier than expected or free up funds for developmental expenditures because of the changing liquidity environment and robust dividend support.