RBI Issues Draft Norms on Bank Dividends: Eligibility Criteria and Guidelines Unveiled

In a significant development, the Reserve Bank of India (RBI) released draft norms on Tuesday outlining criteria and guidelines for declaring bank dividends. The guidelines focus on ensuring financial stability, aligning with Basel III standards, and adapting to changes in the prompt corrective action (PCA) framework.

The draft emphasizes that banks, before considering the declaration of dividends or remittance of profits, must carefully assess factors such as the classification and provisioning for non-performing assets (NPAs), current capital position, and long-term growth plans.

RBI underlined that banks need to meet regulatory capital requirements for the last three financial years, with the net NPA ratio for the proposed financial year being less than 6%. The move is part of the ongoing efforts to enhance the resilience of the banking sector.

Additionally, the circular stipulates that eligible banks should pay dividends exclusively on equity shares. If the net profit includes exceptional or extraordinary income, or if the financial statements are qualified by the statutory auditor, such amounts must be excluded from the dividend payout ratio calculation.

The dividend payout ratio, a crucial metric, represents the proportion of net profit allocated as dividends. Foreign banks operating in India in branch mode may remit net profit/surplus without prior approval, provided they meet eligibility criteria and promptly address any excess remittance.

RBI invites feedback on the draft circular from banks, market participants, and stakeholders until January 31, signalling a collaborative approach to refining the guidelines for a robust banking ecosystem.