Reserve Bank of India examines feasibility of policy on dividend to govt
Reserve Bank of India examines feasibility of policy on dividend to govt: Centre believes there will be green signal for amending the law to enable the policy..
M G Warrier responds:
July 23, 2018
RBI's dividend policy
This refers to Arup Roychoudhury’s report “RBI examines feasibility of policy on dividend to govt” (Business Standard, July 23). Section 47 of the Reserve Bank of India Act, 1934 dealing with RBI’s surplus income reads as under:
“[47. Allocation of surplus profits. After making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds 2[and for all other matters for which provision is to be made by or under this Act or which] are usually provided for by bankers, the balance of the profits shall be paid to the Central Government.]”
It is intriguing that a dividend policy for RBI, independent of the above provision requiring a fresh amendment to RBI Act is now being negotiated between RBI and GOI. Accounting year followed by RBI is July-June while Government’s Financial Year is April March. For the purpose of Budget Estimates which are finalized before February every year only tentative estimates of expected receipts from PSUs and statutory bodies will be available and this is an age-old practice.
While RBI may ultimately succumb to pressure and accommodate GOI’s wishes, strength of the central bank is also about its strong balance sheet and any measure to dilute RBI’s reserves position (as a percentage to balance sheet total RBI’s reserves have come down from a near 12 in 2009 to below 8 last year) will weaken the central bank further. Needless to say, that will reduce RBI’s ability to support GOI in times of need.
M G Warrier, Mumbai