Reserve Bank of India Current Affairs - 2019
Category Wise PDF Compilations available at This Link
The Reserve Bank of India (RBI) will transfer Rs 28,000 crore as interim dividend to the government. RBI had already transferred Rs 40,000 crore to the government in August 2018 and with the additional 28,000. The government would receive a total of Rs 68,000 crore from the central bank in the current fiscal.
This dividend of Rs 68000 will be the highest receipt for the government from RBI in a single financial year. It exceeds the Rs 65,896 crore the government received in FY16 and Rs 40,659 crore in FY18.
RBI follows a July-June financial year and usually distributes the dividend in August after annual accounts are finalised. RBI is providing the interim dividend for the second consecutive year. The RBI had paid Rs 10,000 crore interim dividend in March last year taking the total dividend to Rs 40,659 crore for the year.
The interim dividend by RBI will help the government to meet its revised budget estimates that include an allocation for the first-ever income transfer to farmers and to improve the fiscal position ahead of the general elections in 2019. The budget had factored in interim dividend from the RBI. In the revised estimate for FY19, the government budgeted Rs 74,140 crore from dividends and surpluses of RBI, nationalised banks and financial institutions.
Friction over Dividend
The RBI and the Central government were at loggerheads over the issue of payment of dividends. The government had calculated the profit retained by RBI toward risks and reserves in FY17 and FY18 amounting to Rs 27,380 crore and had wanted this transferred to it.
The government had asked for an interim surplus transfer as well as the amount retained by the RBI from surpluses of the previous two years.
To address the issues related to the transfer of dividend comprehensively a committee had been set up RBI under former Reserve Bank of India governor Bimal Jalan.
The Reserve Bank of India (RBI) has withdrawn the earlier order which stipulated a 20% limit on investments by FPIs in Corporate Bonds.
Why the limit was imposed and why it is being withdrawn?
During the review of the FPI investment in corporate debt in April 2018, the limit was introduced to incentivize the FPIs to maintain a portfolio of assets. But the market feedback suggested contrary. The market feedback suggested that foreign portfolio investors (FPIs) have been constrained by this stipulation.
As a result, to encourage a wider spectrum of investors to access the Indian corporate debt market, RBI has decided to withdraw the 20% limit on investments by FPIs in Corporate Bonds.
Foreign portfolio investment (FPI)
FPI consists of securities and other financial assets passively held by foreign investors. FPI does not provide the investor with direct ownership of financial assets. In India, FPIs are allowed to invest in various debt market instruments such as government bonds, treasury bills, state development loans (SDLs) and corporate bonds, but with certain restrictions and limits. FPI is part of countries capital account and is listed on its balance of payments (BOP).
Differences between FPI and FDI
FPI allows the investor to purchase stocks, bonds or other financial assets in a foreign country and the investor does not actively manage investments or companies that issue investment. Also, the investor does not have control over securities or business.
Whereas in FDI, the investor has a direct business interest in the entity into which the investment is made. The investor controls his monetary investments and actively manages the company into which the investments are made. FPI is more liquid and less risky than FDI.