RBI’s record dividend means a lot for Bond Market
RBI’s record dividend payout provides a major boost to the Indian bond market, improving fiscal stability and easing government borrowing concerns. Discover its impact on yields, liquidity, and investor sentiment.
RBI’s record dividend means a lot for Bond Market
Mumbai, Jul 03
The RBI has given the surplus transfer to the GoI in the ongoing fiscal at Rs 2.69 trillion, higher than the year ago level of Rs 2.1 trillion. This is also Rs 0.4-0.5 trillion (equivalent to 11-14 bps of GDP) higher than the amount that was likely assumed in the FY2026 Union Budget, implying an equivalent upside to non-tax revenues, which would provide some buffer to make up for a miss in taxes or disinvestment receipts, or higher-than-budgeted expenditure in the fiscal.
The RBI’s record dividend payout to the government has stirred a debate in the bond market.
On one hand, the absolute number is historic; on the other, some participants feel it fell short of what the market had priced in. As always, it’s not just the size of the transfer, but how it plays into the broader liquidity and fiscal picture.
The key question now is if the RBI continue its liquidity infusion through daily VRR auctions and outright OMO purchases? The answer will determine where bond yields head next.
Talking to Bizz Buzz, Venkatakrishnan Srinivasan
Founder – Rockfort Fincap says, “If the RBI keeps liquidity flowing for some more time, we could see yields drifting lower.”
But if the central bank decides to pause or scale back these infusions after the upcoming monetary policy, we may see some reversal in yields, he said.
Aditi Nair, chief economist, Icra, says, “Additionally, the upward revision in the FY25 nominal GDP number suggests that despite a relatively lower growth of 9.0 per cent in FY2026 (as per Icra’s expectations) vis-à-vis the budgeted levels of 10.1 per cent, the fiscal deficit-to-GDP ratio can be contained at 4.4 per cent in FY26, while also accommodating a marginal fiscal slippage (to the tune of Rs 300 billion).”
This provides some comfort on the fiscal front.
Rajani Sinha, Chief Economist, CareEdge says, “The key determinant likely for such a huge dividend could be the upbeat gains from dollar sales.”
The gross dollar sales rose notably to USD 371.6 billion up to February in FY25, compared to USD 153 billion in the full-year FY24.
EoM.
