High contingency fund transfer hurts RBI’s dividends:
An increased transfer to the contingency funds given the increase in RBI’s balance sheet size has led to lower dividend payments of Rs 303 billion for FY22. The RBI balance sheet has now declined from a high of 29% of GDP in March 2021 to 26% in March 2022. According to YES Bank’s ‘Ecologue,’ further moderation is likely through FY23, given the RBI’s liquidity and FX operations this year to manage volatility in both the currency and bond markets.
Provisioning under contingency fund at Rs 3.1 trillion, increased by 9.3% while the balance sheet size was higher by 8.5% y/y. On the assets side, the increase was on account of the increase in loans and advances (55% y/y) and gold coin and bullion (30% y/y, due to revaluation effect). After netting out of the dividends from the PSU banks and the FIs, the likely dividend expectations from the RBI can be broadly estimated at Rs 640 billion. This implies that the slippage on the account of dividends could be in the range of Rs 336 billion.
“Along with the estimated loss to the exchequer on account of excise duty cuts and increase in expenditure on account of subsidies (fertilizer + food + LPG), we anticipate a fiscal slippage to the extent of Rs 1,444 billion,” said Indranil Pan, Radhika Piplani and Deepthi Mathew of ‘Business Economics Banking’ in the ‘Ecologue’ of YES Bank. The risk for the 10-year G-sec yield to go higher from the current levels remains a reality.
According to the RBI annual report, several measures for banks and NBFCs are expected to be implemented during 2022-23 in order to further strengthen the regulatory and supervisory framework. Addressing supply-side bottlenecks, calibrating monetary policy to keep inflation within target while supporting growth, and targeted fiscal policy support to aggregate demand, particularly by increasing capital spending, will all shape the future path of growth.
