The Reserve Bank of India (RBI) on Tuesday issued final guidelines, tightening dividend payouts by banks and linking them to capital adequacy and asset quality. The new rules limit payouts to 75% of the net profit.
The RBI has eased the norms regarding the calculation of adjusted profit after tax (PAT). Under the final guidelines, the adjusted PAT should be arrived at by reducing 50% of net non-performing assets (NPA), instead of 100% earlier.
The RBI has rejected the request to consider current year’s common equity tier (CET) 1 ratio instead of the previous year’s CET1.
It has also junked the suggestion to pay dividends from exceptional income or profit. “The dividends shall not be paid from exceptional income/profit, as they are non-recurring in nature. Further, it is not feasible to issue an exhaustive list of all possible exceptional or non-recurring incomes,” the RBI said.
The RBI also rejected the request from banks to defer the implementation of these guidelines till the implementation of guidelines on expected credit loss, citing these are two separate subjects and cannot be linked to each other.
RBI mandates specific criteria to declare dividends
As per the new guidelines, the RBI has mandated specific criteria for banks to declare dividends. They need to comply with regulatory capital requirements at the end of the prior financial year and maintain compliance through the year when the dividend is proposed. Banks should also ensure that regulatory capital stays above requirements post-dividend. The bank incorporated in India shall have a positive adjusted PAT for the period for which the dividend is proposed, while foreign bank operating in India in the branch mode should also have a positive net profit. Violating these guidelines may attract supervisory or enforcement actions, the RBI said.
These directions shall come into effect from FY27 and the extant prudential norms on declaration of dividend and remittance of profits shall remain valid till FY26. the RBI said.