RBI Surplus Transfer Windfall to Support Liquidity, Fiscal Math in FY27: IDFC FIRST Bank

The Reserve Bank of India is likely to transfer a surplus of around ₹2.7 trillion to the government for 2025-26, broadly matching last year’s record payout, with higher interest income offsetting weaker gains from foreign exchange operations, according to estimates by IDFC FIRST Bank Research. 

The central bank’s earnings are expected to remain supported by higher income from both foreign securities and domestic government bond holdings. RBI’s holdings of rupee securities rose sharply during 2025-26 following large-scale open market operation purchases, while foreign currency assets also expanded during the year. 

However, treasury gains from foreign exchange transactions are expected to moderate. Gross dollar sales by the RBI fell sharply to about $166 billion in 2025-26 till February, compared with $399 billion in 2024-25, largely because the central bank entered the year with an already elevated forward dollar book. This limited its ability to sterilise spot market interventions through buy-sell swaps. IDFC FIRST Bank estimates RBI’s earnings from forex operations at around ₹917 billion in 2025-26, lower than ₹1.1 trillion in the previous year.

The report noted that the West Asia crisis likely triggered higher dollar sales in March 2026, though the impact has already been factored into the dividend estimate. Historical dollar purchase costs also remained below prevailing spot levels, helping RBI retain gains on forex sales.

At the same time, the RBI’s balance sheet expanded sharply by 19.6% year-on-year in 2025-26, compared with 6.7% growth in 2024-25, driven by massive OMO purchases and revaluation gains on foreign currency reserves and gold holdings. The central bank bought ₹8.8 trillion of government securities during the year, while gold reserves benefited from nearly 50% rise in gold prices.

The rapid balance sheet expansion is expected to push provisioning requirements higher. IDFC FIRST Bank estimates provisioning at around ₹990 billion in 2025-26 against ₹449 billion in the previous year. Despite the higher provisioning burden, RBI’s overall economic capital is estimated to have risen to 31.1% of total liabilities from 24.9% a year earlier, reflecting large unrealised revaluation gains.

The dividend estimate assumes that the RBI maintains the Contingent Risk Buffer at 7.5% of total assets and liabilities, the upper end of the prescribed range. The central bank had retained the buffer at this level last year as well, citing global uncertainties.

The expected surplus transfer is also seen aligning with the Union Budget’s 2026-27 assumptions. The Budget has projected ₹3.2 trillion in dividends from the RBI and public sector banks combined, implying an RBI contribution of roughly ₹2.7 trillion.

The surplus payout is expected to inject substantial liquidity into the banking system. IDFC FIRST Bank estimates core liquidity surplus could rise to around ₹4.8 trillion after the dividend transfer in May 2026, potentially delaying the need for fresh durable liquidity infusion through OMOs until August.