RBI halves dividend to Govt. to Rs. 3lk Cr.

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RBI halves dividend to Govt. to Rs. 3lk Cr. In a surprise announcement, the RBI said that it has halved its dividend payment to Rs. 30,659 crore for 2016-17 from nearly Rs. 66,000 crore in each of the previous two years. The lower dividend is due to huge expenses borne by the RBI by way of interest payment to banks as part of its liquidity management exercise and in printing notes following de-monetization.

The dividend amount was decided by the central board of Directors, which met to finalize accounts for the year ended June 2016. The board would have also finalized how the central Bank deals with the demonetized currency notes, that were not turned in before June, 2017. However, the RBI is yet to divulge the details on whether it has extinguished the currency which has not been deposited.

The halving of dividend will hurt the government’s finances. As the RBI halves dividend to Govt. to Rs. 3lk Cr. As the lower amount will be a concern since the government’s non tax receipts will be affected. In the budget, it was assumed that around Rs. 75,000 crore would come from RBI, public sector Banks and financial institutions compared with a little over Rs. 76,000 Cr.

In FY17,” said Madan Sabnavis, chief economist, CARE ratings. According to Sabnavis, as PSBs are unlikely to do better than last year and the RBI will be transferring a smaller amount, this will automatically impact the fiscal deficit numbers.
Madan Sabnavis added that if other conditions remain unchanged, the fiscal deficit can increase from 3.2 % to 3.4 % this year. As the RBI halves dividend to Govt. to Rs. 3lk Cr, this will help in reducing the deficit.

Devendra Kumar Pant, chief economist, India Ratings, said the drop in dividends is due to reverse repo transactions.  As well as a high cost has been incurred in printing of notes. And visa-versa US dollar becomes stronger against Rupee.

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