RBI approves Dividend of Rs 57,000 crore to Government

Published: August 15, 2020

The Central Board of the Reserve Bank of India has approved the transfer of Rs 57128 crores as the dividend to the Central government for the accounting year 2019-20 while maintaining the contingency risk buffer at 5.5 per cent.

What happened at the meeting?

The meeting, chaired by the RBI Governor Shaktikanta Das, focused on reviewing the current economic situation, ongoing global and domestic challenges and the monetary, regulatory and other measures taken by the central bank to tackle the situation because of the COVID 19 pandemic in the country.

The central bank also discussed setting up an Innovation Hub. The annual report of the bank was also approved during the meeting.

Why does the RBI pay a dividend to the government?

The Reserve Bank of India, founded in 1934, operates within the ambit of the RBI Act, 1934. According to Chapter 4, Section 47 of this act, the central bank should allocate the surplus funds made from its operations to the central government. It is because of this provision the central bank pays the dividend to the Government of India. This section is known as ‘Allocation of Surplus Funds.’

How does RBI earn profits?

The main source of income for the central bank is the interest it earns from the sale and purchase of the government securities, the interest earned from lending to banks and the interest earned on bond holdings from the open market principles. From the earnings, the net profit is calculated by subtracting the operational expenses and other expenses as stipulated under Section 47 of the RBI Act, 1934.

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