RBI Proposes Relaxing Bank Dividend Payout Rules

By siliconindia  |  Wednesday, January 3, 2024

RBI Proposes Relaxing Bank Dividend Payout Rules
The Reserve Bank of India (RBI) has suggested allowing banks with a net non-performing assets (NPAs) ratio below 6 percent to announce dividends. Presently, banks are required to maintain an NNPA ratio of up to 7 percent to be eligible for dividend declaration.
“The net NPA ratio, for the financial year for which the dividend is proposed, should be less than six percent”, the RBI said in the draft guidelines on dividend declaration. The Reserve Bank of India (RBI) stated that the guidelines have been reevaluated in consideration of the implementation of Basel III standards, the modification of the prompt corrective action (PCA) framework, and the introduction of differentiated banks.
The central bank has recommended that the updated guidelines be applicable starting from the fiscal year 2025. According to the RBI, for a commercial bank to be eligible to declare dividends, it should maintain a minimum total capital adequacy of 11.5 percent. Similarly, small finance banks and payment banks are required to maintain a minimum of 15 percent, while local area banks and regional rural banks should maintain a minimum of 9 percent.
The RBI has proposed increasing the upper ceiling on the dividend payout ratio which is the ratio between the amount of the dividend payable in a year and the net profit to 50 percent if the net NPA is zero from the earlier ceiling of 40 percent. The draft also made it clear that the Reserve Bank should not entertain any request for “ad-hoc dispensation on a declaration of dividend”.

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