RBI dividend below market estimate due to high buffer, but fiscal cushion still strengthened: ICICI Securities – CNBC TV18

Reserve Bank of India’s record dividend payments of 2.69 lakh crore surprise the markets at the center of 2.69 lakh crore, not for its size, but due to a sharp-to-the-to-submitted increase in the contingent buffer of the central bank. The RBI increased the buffer by 7.5% of its balance sheet, from 6%, which economists say that the dividend was reduced to ₹ 3-3.5 lakh crore range.

Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership, said, “This number would have been close to ₹ 3.5 lakh crore if RBI would not have increased the casual reserve buffer from 1% to 7.5%. In market estimates, the general consensus was around ₹ 3 lakh crore.”

However, he said that the impact on market or fiscal mathematics would be limited. “It gives more confidence in the fiscal approach and should not be significant implications from a market point of view, given that expectations were already cooked.”

Radhika Rao, executive director and senior economist at DBS Bank, called the big buffer a “biggest source of surprise”. He said, “Nevertheless, there has been an increase last year. Nevertheless, we are at a record high level. Nevertheless, there is an increase of about 25-30%. And I think there is still about 30 basis points about how much it adds to fiscal revenue, which is compared to the budget for it.”

From an fiscal point of view, economists look at the payment that provides a proper cushion. Madan Sabnavis, the chief economist of Bank of Baroda, said, “From ₹ 2.1 lakh crore to of 2.69 lakh crore rupees, there is definitely something that will be beneficial in these indefinite times.” “If there is any additional expenditure that is to be done by the government, then I think it’s anything that can be absorbed very well by these things.”

Madhavi Arora, the chief economist of Emkay Global Financial Services, said that despite the dividend being less than some market estimates, it still translates to about 500 billion of 500 billion in the additional financial year – about 0.1% of GDP.

“Our understanding is that the government fiscal mathematics will not dramatically change,” he said. “Older benefits that they are gaining from high RBI dividends are actually partially offset by a possibly slow tax growth … so, so far, we feel that GDP ratio will still have gross fiscal deficit in GDP ratio 4.4% for FY 26.”

The added fiscal cushion also allows the government to maintain capital expenditure, especially on strategic heads. Upadhyay said, “This additional cushion around about 0.15% of GDP allows the government to spend a lot of jerk room, including defense capes, etc., to spend some additional funds,” Upadhyay said.

In terms of monetary policy, RBI’s stance is still seen as adjusted, with economists expected to cut forward rates despite small-to-introduced dividends.

“The governor mentioned that just because the stand has become, it does not mean that it is going to turn on liquidity,” Rao said. “While they keep liquidity in the surplus, I think the response work is likely to continue in terms of cut rates.”

Abhishek Upadhyay said that the rate cut remains on the table. “We are thinking that there is scope for two more rate cuts for a terminal policy rate of 5.5%… and there is a possibility of next rate cut in the upcoming meeting in August.”

Watch the video for complete discussion.