Daijiworld Media Network - Mumbai

Mumbai, Jan 7: The Reserve Bank of India (RBI) has issued draft guidelines aimed at tightening dividend payouts by banks, linking distributions to capital adequacy, asset quality, and profitability. The new prudential framework is proposed to come into effect from FY27.

Last year, Indian banks distributed over Rs 75,000 crore in dividends after posting record profits. Under the RBI draft, all scheduled commercial banks, including SBI, new banking companies, and foreign banks operating in India, will need to comply with a common set of eligibility criteria before declaring dividends or remitting profits. However, small finance banks, payments banks, local area banks, and regional rural banks are exempt from the framework.

Key conditions for dividend declaration include:

• Maintaining minimum regulatory capital requirements and buffers, including additional capital for domestic systemically important banks (D-SIBs).

• Ensuring that capital ratios do not fall below regulatory thresholds after dividend payouts.

• Indian-incorporated banks must report positive adjusted profit after tax (profit after tax minus net NPAs).

• Foreign bank branches must show positive profit after tax for the relevant period.

Banks failing to meet any of these criteria cannot declare dividends for that period, and no special exemptions will be allowed. The RBI also retains the right to impose additional restrictions if a bank is non-compliant with laws or regulatory guidelines.

The framework introduces a graded structure linking dividend payouts directly to the bank’s capital strength, based on Common Equity Tier 1 (CET1) ratios, reinforcing prudence and financial stability.

Experts say the move is expected to promote stronger capital buffers in banks and prevent excessive payouts during periods of economic uncertainty, ensuring the banking system remains resilient.