RBI and Banking System in Economy
Declaration by RBI of Rs 2.1 lakh crore dividend to the government of India is the highest ever given by it. This reflects the capital health of our banks. This dividend by RBI has instantly raised the stocks of public and private banks, boosting the Sensex.
Banking is the main pillar of economy. It provides people a place to keep its money safe and earn interest to fight inflation. By providing loans to different categories of people and institutions, banks are doing yeoman service to keep the wheels of economy moving.
Some people with a socialistic mindset of early times argue that banks are collecting money from common people and giving it to capitalists so that they can earn more money. It may be pointed out that a staggering 60% of bank loans in the socialist period of 1970s went to the industrialists. Now, fewer loans are being made to firms and industries. The percentage of loans to the industry sector (or billionaire capitalists) in bank credit has decreased to roughly 25% of total loan disbursements. There is rise in personal loans, home loans and agricultural loans over the past few years. This helps the middle and lower classes.
Banks are charging for its many services, but in turn they have to spend more due to stringent RBI regulations, cyber security and upgradation of software. Banks have to cope with NPA. However, the banks have reduced their NPA to 3.2%. India’s banking system reached a hstoric milestone with a net profit surpassing Rs 3 lakh crore in FY24- an increase of 39% year on year.
The RBI ( nationalised in 1949) Is the regulator of banks as well as responsible for monetary policies and actions to check inflation. The RBI also normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency. Other sources of income for RBI include deposits with foreign central banks or the Bank for International Settlement (BIS). RBI also earns from lending to banks for very short tenures. It also earns management commission on handling the borrowings of state governments and the central government.
RBI gives dividends to its shareholders including the government. The dividend payment supports government surplus and its expenditure and liquidity.
