India’s central bank is likely to transfer a record-breaking surplus of ₹2.7 lakh crore to ₹3 lakh crore to the government in FY26, nearly 50% higher than last year’s historic ₹2.1 lakh crore payout, according to Front Wave Research. The surplus transfer, expected to be announced by the end of May, may significantly impact India’s fiscal strength and liquidity conditions.
Forex Gains, Global Rates, and Domestic Earnings Drive Surplus
Three key factors primarily drive the surge in the surplus. Firstly, the RBI made strong trading gains through timely forex market operations—buying US dollars at ₹83–84 and selling at ₹84–87. These profitable trades boosted the RBI’s earnings substantially.
Secondly, with over USD 600 billion in foreign exchange reserves, the RBI benefited from elevated global interest rates. The increased interest income from these reserves added to the central bank’s bottom line.
Finally, on the domestic front, the RBI generated solid revenue through Open Market Operations (OMOs), bond investments, and repo transactions. These strengthened the RBI’s balance sheet and expanded the available surplus
Liquidity Reversal on the Horizon
The dividend payout, once spent by the government, could sharply raise banking system liquidity. Current estimates suggest liquidity may rise to ₹5.5–6 trillion, up from recent deficits. This would mark a significant turnaround in market conditions.
Front Wave’s report noted, “Once the dividend is paid and spent, banking system liquidity could climb to ₹5.5–6 trillion, up from a recent deficit.” The potential cash injection is being viewed as a stealth economic stimulus.
Bond Yields Drop, Growth Sectors Gain
The bond market has now priced in the anticipated increase in liquidity. The yield on the benchmark 10-year government bond has fallen to 6.23% and likely has more to go. Yields on the shorter-dated bonds are falling even faster, causing a steepening of the yield curve, which could signify an impending cut in rates.
PSU banks, NBFCs, infrastructure and consumption have received elevated interest from investors. If it turns out that the transfer is ₹3 lakh crore, then this could help support future growth and market sentiment through FY26, acting as a fiscal buffer.
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