The Reserve Bank of India (RBI) has transferred its highest-ever dividend of Rs 2.69 lakh crore to the Government of India for the financial year 2024–25. Following this, analysts at SBI expect the fiscal deficit to ease by 20 to 30 basis points from the budgeted level, potentially bringing it down to 4.2% of GDP. Alternatively, they anticipate that the government might choose to increase spending by around Rs 70,000 crore.
The Union Budget had projected income of approximately Rs 2.56 lakh crore from the RBI and other financial institutions. With the RBI alone contributing nearly Rs 2.7 lakh crore, the government now has more fiscal room than originally estimated. This marks the third consecutive year in which the actual dividend has exceeded the budgeted estimate.
This record dividend represents a 27.4% increase from last year’s transfer of Rs 2.11 lakh crore, reflecting the central bank’s stronger financial performance in FY25.
Experts maintain FY26 gross fiscal deficit target at 4.4% of GDP
According to Emkay Global Financial Services, this increased dividend implies an extra fiscal boost of 0.15% of GDP. However, despite the higher-than-expected transfer, analysts do not anticipate a major revision to the Centre’s fiscal roadmap, as the gain is likely to partly offset potential shortfalls in tax revenues and slower nominal GDP growth.
“As of now, we do not expect fiscal math to change drastically because of this. The incremental gain from the higher RBI dividend is expected to partly offset potential shortfalls in tax revenues and lower-than-expected nominal GDP growth. Accordingly, we maintain our FY26 gross fiscal deficit-to-GDP target at 4.4%, in line with the budget estimate,” Emkay said.
Yields set to ease: experts
Research experts at Emkay Global Financial Services expect the 10-year government bond yield to ease to 6.0% by the end of calendar year 2025, with a likely strengthening of the bull steepening bias in the near term. This anticipated decline in yields comes despite expectations of a liquidity deluge in the coming months. Analysts believe this surplus liquidity will not derail a potential rate cut in June or affect the depth of the easing cycle.
Risk buffer raised to 7.5%
SBI Research pointed out that the RBI has increased its risk buffer; otherwise, the dividend transfer could have exceeded Rs 3.5 lakh crore. “The Board had recommended that the risk provisioning under the Contingent Risk Buffer (CRB) be maintained within a range of 7.5% to 4.5% of the RBI’s balance sheet.” This move reflects the central bank’s prudence and its preparedness for unforeseen financial challenges. In the past two financial years, the CRB was maintained at 6.0% (FY23) and 6.5% (FY24), but for FY25, it has been raised to 7.5%.
Why did the surplus rise?
The RBI’s record surplus was primarily driven by strong foreign exchange earnings, aggressive dollar sales aimed at stabilizing the rupee, and rising interest income from both domestic and international securities. India’s foreign exchange reserves peaked at $704 billion in September 2024. To manage currency volatility, the RBI intervened heavily, becoming the top seller of forex reserves among Asian central banks in January 2025. These interventions not only helped stabilize the rupee but also significantly boosted the RBI’s income.
Gross dollar sales rose sharply to $371.6 billion in FY25 (up to February), compared to $153 billion in FY24. At the same time, the RBI’s earnings from interest on securities also increased. Its holdings of rupee securities climbed by Rs 1.95 lakh crore to reach Rs 15.6 lakh crore as of March 2025. However, some of these gains were offset by a decline in government bond yields, which impacted mark-to-market returns.
How was the transferable surplus calculated?
The transferable surplus was determined in accordance with the revised Economic Capital Framework (ECF) approved by the RBI’s Central Board during its meeting on May 15, 2025. Based on the macroeconomic assessment, the Board decided to increase the CRB to 7.5%, which reduced the amount available for dividend transfer.
Additionally, the RBI’s surplus was influenced by its Liquidity Adjustment Facility (LAF) operations. From June to mid-December 2024, the central bank absorbed excess liquidity from the banking system. However, after mid-December, the situation reversed, and the RBI had to inject liquidity to meet demand. These operations directly impact the RBI’s income and expenditure through interest flows.
By March 2025, system liquidity turned positive with a surplus of Rs 1.2 lakh crore, although the average liquidity deficit from mid-December to late March remained around Rs 1.7 lakh crore.
What to expect in FY26
Looking ahead, experts expect durable liquidity to remain in surplus in FY26. This will likely be supported by factors such as Open Market Operation (OMO) purchases, the large RBI dividend transfer, and a projected Balance of Payments (BoP) surplus of $25–30 billion. As a result, core liquidity is expected to rise to around Rs 4.95 lakh crore by the end of May 2025.