RBI forex income expected to rise, lift payout to government

The Reserve Bank of India likely earned a higher income from the deployment of foreign exchange reserves in FY25 compared with the previous year, suggest the latest RBI data, as US treasury yields had stayed elevated during several months of the past year.This income, part of interest earnings from foreign sources, will help boost the central bank’s dividend payment to the government which is already expected to be higher this year due to strong commissions it earned from forex operations and interest income on government securities. But an accurate forecast of the transfer amount may be difficult due to complex provisioning exercises, said analysts.

Interest earnings on RBI’s foreign currency assets rose 40% to $17 billion during April-December 2024, the first nine months of the fiscal year, from a year earlier, according to data on the break-up of invisibles released by the central bank last week.

An analysis of RBI’s income and expenditure over the years shows that these earnings from forex deployment account for less than 15% of the central bank’s total income. Other major sources include income from forex operations to manage the currency markets-dollar sales and purchases from which it earns a commission. It also earns interest on the stock of government securities it holds in its books and through the liquidity operations it conducts.

“We expect the RBI dividend to be supported by forex intervention as gross dollar sales have been substantial. Other sources of income will be interest income on government security and foreign currency assets,” said Gaura Sengupta, chief economist at IDFC First Bank. “On the expenditure side, how much provisioning is done can be a key variable.”

The RBI is likely to announce the transfer of its surplus funds of FY25 to the government in late May. It had paid ₹2.1 lakh crore last year, which was double the expectations.

The RBI’s economic capital-the reserves it needs to maintain financial stability-is tracking on the higher side at 28.5% as of March 28, 2025 against the recommended 20.4-25.4%. Despite this, provisioning could be higher than last year because of the RBI’s balance sheet growth, according to experts. The central bank has been infusing liquidity into the banking system to enable policy transmission after two rounds of interest rate cuts. This is expected to have expanded its balance sheet.