India Economy
27 Aug 2019

India Economy:RBI transfers to make budget figures realistic

  • RBI announced a total transfer of Rs1.48tn to the government for FY20. This represents Rs420-580bn in excess dividends, compared with the budgeted figure by the government for FY20. Even after this transfer, the RBI remains one of the healthier central banks in the world with a total capitalization of 23% of the balance sheet and the Contingency Risk Buffer at the lower end of 5.5% from 6.8% (6.5-5.5% range is the prescribed level).
  • The excess dividends of Rs420-580bn translates to 22-31bps of GDP, which can be used to bridge the possibility of a shortfall in tax revenues growth. The decline in tax revenues growth can be to the extent of 17% from a budgeted 20% yoy (tax buoyancy would still be more than 1). Thus, the fiscal math looks a lot more achievable following this transfer.
  • Our base case is that the government remains disciplined on fiscal targets with this more credible math, we should see a further rally in Gsec yields (10-year yields at ~6.5%). Even after these transfers, the fiscal deficit (including off-balance sheet) should be at 5.4%, similar to FY19. Bond proxies (such as NTPC) and PSU banks on treasury (SBI) could benefit from this.
  • If the government chooses to convert the transferred sum into a higher spending, we believe it would tilt more in favor of infrastructure spending rather than consumption. Overall, this event should support markets in the short term due to additional support from the RBI to the government.

Please click here for report.



The information herein is furnished by Emkay. The report is for your reference and information only, and is not warranted to be complete, accurate or timely. Specifically, such content/ report is not intended nor shall it be construed as financial, tax, investment or other advice, or as an offer, solicitation or recommendation of securities or other financial products. You acknowledge and agree that the content/report is provided for your personal use and you undertake not to redistribute or transmit all or any of the content/ report to any third party (whether free of charge or for consideration, in any manner or form whatsoever). DBS is not responsible for any trading decisions, damages or other losses related to the use of this report, and shall have no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of this content/report herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof. Past performance is no guarantee of future results. The value and income derived from investments may increase or decrease. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.