The central board of the Reserve Bank of India (RBI) has approved the transfer of Rs 87,416 crore for 2022-23 as surplus to the central government. The RBI board also decided to increase the contingency risk buffer from 5.5% to 6%, the RBI said on May 19.

“At its meeting, the Board reviewed the global and domestic economic situation and related challenges, including the impact of current global geopolitical developments. The board also discussed the work of the Reserve Bank for the period April 2022 to March 2023 and approved the Annual Report and the Reserve Bank of Accounts budget for FY22-23,” the central bank said in a statement.

The 2022-23 dividend transferred in 2023-24 is substantially higher than the government expects to receive. In Budget 2023, the government estimated to receive Rs 48,000 crore in dividends from the central bank and state-owned banks in 2023-24.

For example, security prices on US government bonds fall as their yields rise. The RBI has been forced to set aside Rs 1.15 lakh crore for its contingency fund in 2021-22 as rising global interest rates hit its investments in foreign securities. This has resulted in the central bank’s dividend distribution for 2021-22 of just Rs 30,307 crore in May 2022, well below the budget estimate of Rs 73,948 crore.

However, the RBI’s dividend in 2022-23 is likely to rise significantly as it reaps substantial foreign exchange gains from foreign exchange sales.

RBI dividends have become the government’s main source of revenue over the years, rising from Rs 33,010 crore in 2012-13 to Rs 1.76 lakh crore in 2018-19 following the RBI’s changes to the economic capital framework in August 2019.

The dividend increase comes after the RBI accepted the advice of a committee of experts led by Bimal Jalan.

RBI profited from its foreign currency sales as the selling price was higher than the historical average acquisition cost. Economists put the historical average acquisition cost of the RBI’s foreign currency holdings in the range of Rs 62-65 per dollar.

Meanwhile, the monthly median rupee-to-dollar exchange rate ranges between 76.2 and 82.7 in 2022-23. Therefore, every dollar of sales during the year generates a handsome profit.

According to the latest RBI data, the central bank sold foreign currency worth $206.41 billion in the first 11 months of 2022-23.

That compares with $96.68 billion in sales for all of 2021-22. However, this was enough to net the RBI a forex gain of Rs 68,991 crore. Considering the RBI’s total foreign exchange sales from April 2022 to February 2023 are more than double that of 2021-22, the foreign exchange gain could be close to Rs 1.5 lakh crore.

The central bank may provide exact details on the RBI’s provisions and foreign exchange gains as early as next week when it releases its annual report.