( it is not ), and even if the board were convinced a higher dividend would not compromise the creditworthiness of the rbi, there is a more fundamental economic reason why a special dividend would not help the government with its budgetary constraints. bis central bankers ’ speeches here ’ s why : much of the surplus we make comes from the interest we get on government assets or from the capital gains we make off other market participants. when we pay this to the government as dividends, we are putting back into the system the money we made from it – there is no additional money printing or reserve creation involved. 1 but when we pay a special dividend to the government, we have to create additional permanent reserves, or more colloquially, print money. every year, we have in mind a growth rate of permanent reserves consistent with the economy ’ s cash needs and our inflation goals. given that budgeted growth rate, to accommodate the special dividend we will have to withdraw an equivalent amount of money from the public by selling government bonds in our portfolio ( or alternatively, doing fewer open market purchases than we budgeted ). of course, the government can use the special dividend to spend, reducing its public borrowing by that amount. but the rbi will have to sell bonds of exactly that amount to the public in order to stick to its target for money creation. the overall net sale of government bonds by the government and the rbi combined to the public ( that is, the effective public sector borrowing requirement ) will not change. but the entire objective of financing government spending with a special rbi dividend is to reduce overall government bond sales to the public. that objective is not achieved! the bottom line is that the rbi should transfer to the government the entire surplus, retaining just enough buffers that are consistent with good central bank risk management practice. indeed, this year the board paid out an extra 8, 000 crores than was promised to the government around budget time. separately, the government can infuse capital into the banks. the two decisions need not be linked. there are no creative ways of extracting more money from the rbi – there is no free lunch! instead, the government should acknowledge its substantial equity position in the rbi and subtract it from its outstanding debt when it announces its net debt position. that would satisfy all concerned without monetary damage. if what i have said just now seems complicated, it is, but it is also the correct economic reasoning. similar detailed rationales

. in this demanding business environment, improved operational efficiency will help banks in standing up to the challenges and enable them to maintain their health and bis central bankers ’ speeches profitability. i strongly believe that every time the financial system has been faced with a crisis, a resolute push towards improved productivity and efficiency has invariably aided it in seeing through the troubled times. 12. as banks form the core of the country ’ s financial system, the health and profitability of banks will help in ensuring stability and resilience of the entire financial system. thus, from a systemic stability perspective also, improved productivity and efficiency of the banking system is a definite positive. productivity trends in indian banking 13. the indian banking industry has, over the years, taken significant strides in its quest for greater productivity. analysis of data ( based on various parameters ) indicates that indian banks, particularly the public sector banks, have shown significant progress on the productivity and efficiency front. the efficiency of banks has been analyzed based on cost based parameters and profitability linked parameters. cost based parameters 14. as can be seen from the table above, all three ratios have seen a significant improvement during this period, indicating improved efficiency of the banking system. for instance, the ratio of operating expenses to average assets has seen a decline from 2. 60 % to 1. 75 % during 1992 – 2013. a bank - group wise analysis indicates that public sector banks ( psbs ) have seen much greater progress as compared to new private banks and foreign banks ( tables in annex ). the cost income ratio across bank groups also indicates similar pattern, with the ratio seeing a significant decline over the period 1995 – 2013. the main drivers of this decline were the psbs, which saw a perceptible decline in this ratio while new private banks and foreign banks, in fact, saw a rise in this ratio over the period under review. 15. an analysis of the cagr of various expense parameters indicates that operating expenses grew at a cagr of 14. 65 % between 1992 and 2013, whereas staff expenses grew at a cagr of 13. 63 % during this period. psbs had the lowest cagr for operating expenses, staff expenses and other operating expenses ( table in annex ) 16. as indicated by table 2 above, banking productivity in terms of staff costs has seen a considerable improvement during 1992 – 2013. interestingly, there has been a significant convergence of these ratios across various bank groups ( tables in annex ). while the ratios bis central