RBI Annual Report – Has RBI paid out too much from forex trading gains?

For FY26, the RBI paid out ₹2,86,588 crore as dividend distribution to the government. This is the highest ever dividend and the third consecutive year in which the RBI dividend was above ₹2 trillion. However, we may be ignoring a risk factor.

RBI FY26 accounts – The big picture

Total balance sheet size of RBI increased from ₹76.25 trillion to ₹91.97 trillion between FY25 and FY26. Nearly 55% of this accretion came from revaluation of gold and forex holdings. Total income of RBI went up from ₹3.38 trillion to ₹4.28 trillion over last 1 year, with 72% of accretion in income coming from dollar trading gains amidst a vertically falling rupee. Total income saw improvement in interest on domestic investments and also on global investments. But the big income growth was driven by trading profits and exchange translation gains on the RBI continuously selling dollars to defend the rupee.

Why the dividend payout is risky?

There is an ongoing debate on whether the RBI should have used these bumper surpluses to pay dividend to the RBI or to beef up its reserves. There is an eminent logic to this question. Had the increase in profits come from regular interest on holdings of domestic and global securities, it should not have posed a problem. However, in this case, the income accretion has come largely from exchange related gains, amid a falling rupee. Between FY25 and FY26, the interest earnings of the RBI were up 11.8%, while the exchange related trading gains increased by 50.5%. That is where this call for caution comes; because exchange related gains are neither sustainable, nor are they predictable.

Government must not get used to such largesse

The second argument against such a huge dividend payout is that it has few global precedents and hence the Indian government may get used to it. That is correct, since the RBI has paid dividends above ₹2 trillion for 3 years in a row. However, if the rupee was to technically start strengthening, such gains may not be sustainable. It is essential that the Finance Ministry plans its budgets factoring RBI dividend as a peripheral source of receipts and not as a core source accounting for 45% of its non-tax revenues. This year, the transfer to contingency fund was reduced to 6.5% of balance sheet size from 7.5%. This confidence comes from the revaluation reserve accretion story.

How the RBI dividends are used matters a lot

If RBI dividends are used for accretive capex, it is acceptable, but using RBI dividends to fill shortfalls in tax revenues or to pay for fuel and fertilizer subsidies is not a good idea. One benchmark can be Norway. Even through Norwegian Pension Fund is a sovereign wealth fund, the government is allowed to use only 3% of the fund corpus each year to balance its budget. On an average, that is about 15%-20% of the fund’s annual surplus. In contrast, RBI paying out 100% of the surplus to the government with no questions asked, raises eyebrows. In a sense, the RBI was making hay out of a weak rupee, and also paying dividends to the government. That does not look like a really great idea!