MUMBAI: A dip in US interest rates aided RBI in declaring a record dividend of Rs 2.1 lakh crore in FY24.
RBI could avoid making provisions for depreciation in the value of US bonds because of the fall in interest rates, which also led to a write-back of Rs 22,000 crore from the Rs 71,239 crore provision made in FY23. If the decrease in interest rates continues in FY25, RBI may be able to still declare a large dividend even if profits from forex sales dip.
The drop in rates, along with the gains from selling dollars in forex markets, resulted in a record surplus for RBI.Nearly 68% of RBI’s balance sheet – around Rs 70 lakh crore – consists of foreign currency assets, with a significant portion in US govt bonds prioritised for safety, liquidity, and returns.
In FY23, the US Federal Reserve had hiked rates by 450 basis points. This caused the prices of older bonds to fall sharply. RBI had to therefore increase its mark-to-market provision to compensate for the drop in bond market value.
In FY24, US interest rates plateaued, and there was subsequently a dip in yields, leading to a decrease in the mark-to-market provisions requirement to Rs 1.43 lakh crore in March 2024.