RBI Weighs Plan To Limit Banks’ Dividend Payouts To 75% Of Net Profit

The Reserve Bank of India on Tuesday proposed norms for dividends by commercial banks under which the payout to shareholders will be capped at 75% of their net profit. A higher cap of 80% of PAT has been proposed in the case of regional rural banks and local area banks.

The regulator defined ‘dividend’ as an amount payable on equity shares and includes interim dividend, but excludes dividend on Perpetual Non-Cumulative Preference Shares (PNCPS).

"A bank incorporated in India which satisfies the eligibility criteria... may declare and pay dividend up to the limits prescribed under Table 1 below, but in aggregate not exceeding 75% of the PAT for the period for which the dividend is being proposed," according to the draft Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profits Directions, 2026.

The Reserve Bank had undertaken a review of the extant guidelines on the prudential norms on declaration of dividend. Accordingly, a draft of the revised framework was issued for public comments on Jan. 2, 2024.

Based on the stakeholder feedback and consultations, the RBI released draft directions proposing a new methodology for computing the maximum eligible dividend payout for public comments till Feb. 5.

The Board of Directors should consider long-term growth plans and capital position while considering a proposal for the declaration of dividends or remittance of profit. Also, banks must have a positive adjusted profit after tax (PAT) for the period for which the dividend is proposed.

A foreign bank operating in India in the branch mode should have positive PAT for the period for which the profits are to be remitted to the head office.

The Reserve Bank will reserve the right to place restrictions on the distribution of dividends or remittance of profit where a bank is found to be non-compliant with applicable laws, regulations and guidelines, the draft said.