New Delhi [India], January 7 (ANI): The Reserve Bank of India (RBI) proposes to raise the dividconclude payout cap for banks to 75 per cent of net profit from the earlier limit of 40 per cent.
The central bank also proposed that bank boards should comprehensively assess asset quality trconcludes, provisioning gaps, capital adequacy and long-term growth plans before approving any dividconclude payout.
In a draft set of prudential norms on declaration of dividconcludes and remittance of profits, the central bank has laid down a graded structure for dividconclude payments based on banks’ common equity tier-1 (CET1) capital levels and invited comments from stakeholders by February 5.
The draft directions, which will come into effect from the financial year 2026-27, will apply to all commercial banks, including the State Bank of India and foreign banks operating in branch mode, but will exclude tiny finance banks, payments banks, regional rural banks and local area banks.
Under the proposed framework, banks incorporated in India that meet the prescribed eligibility criteria may declare dividconcludes up to 75 per cent of their profit after tax (PAT), subject to capital-linked ceilings. The actual payout will depconclude on a bank’s CET1 ratio as at the conclude of the previous financial year.
The RBI has introduced a ten-bucket structure under which banks with higher capital buffers will be permitted to distribute a larger proportion of adjusted profits.
Adjusted PAT for the purpose of dividconclude calculation will be arrived at after deducting net non-performing assets (NPAs) as on March 31 of the relevant year. The draft also creates it clear that dividconcludes cannot be paid out of exceptional or extraordinary income, unrealised gains from fair valuation, or profits arising from reversal of excess provisions unless permitted under existing RBI norms.
Bank boards will be required to explicitly consider supervisory observations on divergence in asset classification and provisioning.
Foreign banks operating in India in branch mode will be allowed to remit profits to their head offices without prior RBI approval, provided they meet eligibility criteria, their accounts are audited and capital requirements remain compliant after remittance.
The Central Bank has retained the power to restrict dividconclude payments or profit remittances in cases of regulatory non-compliance. Banks failing to meet eligibility norms will not be granted any special dispensation.
The draft directions will replace existing circulars governing dividconclude declarations by commercial banks. Non-compliance with the proposed norms could attract supervisory or enforcement action by the central bank.
The RBI declared the proposed framework aims to strike a balance between rewarding shareholders and ensuring that banks conserve capital to support resilience and sustainable growth, particularly in light of evolving risk profiles and supervisory expectations. (ANI)
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