The Reserve Bank of India has announced new guidelines that make it stricter for banks to distribute dividends to shareholders.
Under the new rules, banks will be allowed to pay a maximum of 75% of their net profit as dividends.
The decision aims to ensure that banks maintain strong financial stability and keep enough capital to handle risks.
These updated rules link dividend payouts directly to factors such as capital adequacy and asset quality, which are key indicators of a bank’s financial health.
Changes in How Banks Calculate Adjusted Profit
The RBI has also made an important change in how banks calculate their adjusted profit after tax (PAT).
Earlier, banks had to deduct 100% of their net non-performing assets (NPAs) while calculating adjusted PAT.
Under the new rules, they only need to deduct 50% of net NPAs.
This adjustment gives banks slightly more flexibility while calculating profits eligible for dividend distribution.
However, the central bank rejected a request from banks to calculate dividend eligibility using the current year’s Common Equity Tier-1 (CET1) ratio instead of the previous year’s ratio.
The regulator has decided to continue using the earlier approach.
Dividends Cannot Be Paid from Exceptional Income
The RBI has clearly stated that banks cannot pay dividends using exceptional or one-time income.
According to the central bank, such earnings are not regular and therefore should not be used for shareholder payouts.
The regulator also said it is not practical to create a complete list of all types of exceptional or non-recurring income.
Because of this, banks must avoid using such profits while declaring dividends.
Banks Must Meet Strict Financial Conditions
The new guidelines also set specific conditions that banks must meet before declaring dividends.
Banks must:
Meet all regulatory capital requirements at the end of the previous financial year
Continue to maintain these requirements during the year when the dividend is proposed
Ensure their capital levels remain above the required minimum even after paying dividends
Banks incorporated in India must also report a positive adjusted profit after tax for the period in which they plan to declare dividends.
Meanwhile, foreign banks operating in India through branch offices must report positive net profits to qualify for dividend payouts.
The RBI warned that any violation of these guidelines could lead to supervisory or enforcement action.
New Rules to Apply from FY27
The new dividend rules will come into effect from the financial year 2026–27 (FY27).
Until then, the existing rules related to dividend declaration and profit remittance will remain in place until FY26.
Through these changes, the Reserve Bank aims to ensure that banks maintain strong financial buffers while still allowing them to reward shareholders responsibly.
