MUMBAI: The Reserve Bank of India’s (RBI) concerted efforts to defend the rupee from excessive depreciation in FY25 have ended up delivering a windfall to the government, with the central bank transferring a record Rs2.69 lakh crore as surplus for the year – the highest ever dividend payout to the exchequer.
Explaining the operations, a currency expert told businessbenchmark.news, “the central bank’s aggressive dollar sales not only kept the rupee stable but also helped deliver a record surplus to the government.
This unexpected bounty stems in large part from RBI’s intervention in the foreign exchange market, where it sold dollars accumulated earlier at lower exchange rates, booking profits as the rupee weakened (pushing dollar up).
The central bank has been a net seller of dollars since October 2024, as it sought to curb volatility and protect the rupee amid global headwinds and rising US interest rates.
According to official data, the RBI sold $398.71 billion and purchased $364.2 billion on a gross basis in FY25, resulting in a net sale of $34.51 billion
With the rupee moving in a relatively narrow band of 83 to 87 per dollar, these forex operations allowed the RBI to earn a healthy margin, similar to buying low and selling high in a commercial transaction.
Intervention has double benefits
The intervention helped the Indian currency remain one of the least volatile among its Asian peers during the year, but it also had an unintended fiscal benefit: higher profits for the central bank.
The surplus income came after provisioning for various obligations such as asset depreciation, staff welfare funds, and most importantly, risk buffers.
This year, the RBI’s Central Board revised the Contingent Risk Buffer (CRB) under the updated Economic Capital Framework to 6 per cent of the balance sheet, with a flexibility band of + or – 1.5 per cent. This replaced the previous static level of 6.5 per cent, while retaining a lower bound of 5.5 per cent.
CRB acts as safety net
The CRB acts as a safety net for monetary and financial stability risks. The move to recalibrate the buffer range appears to reflect the central bank’s confidence in the current macroeconomic environment, despite global uncertainties.
During the pandemic years and immediate aftermath – FY19 through FY22 – the CRB was maintained at 5.5 per cent to prioritise economic revival.
It was later raised to 6 per cent in FY23 and then to 6.5 per cent in FY24.
The recent revision allows for more room to manoeuvre, with the central bank choosing a mid-range target of 6 per cent for FY25, which in turn freed up more surplus for transfer.
Every year, the RBI transfers its net surplus to the central government under provisions of the RBI Act, after accounting for all necessary provisions. This surplus – often called the RBI dividend – forms a key part of the Centre’s non-tax revenue.
In the Union Budget for FY26, Finance Minister Nirmala Sitharaman had estimated Rs2.56 lakh crore in dividends from the RBI and public sector banks combined.
With the RBI’s share already exceeding this target on its own, the government’s fiscal math may see some upside, potentially reducing its need for additional borrowing or enabling more headroom for spending.
Record payout
While the RBI’s dividend has historically fluctuated based on global interest rates, domestic liquidity conditions, and capital market valuations, this year’s record payout highlights how central bank interventions – often viewed only through a monetary policy lens – can also significantly impact the fiscal side of the economy.
Whether such profits are repeatable in future years remains to be seen, especially if the rupee stabilises and the need for aggressive forex interventions fades.
But for now, the Centre will be pleased with this windfall, which comes at a crucial time amid ongoing trade talks and global financial volatility.
