The Reserve Bank of India (RBI) on Tuesday released a draft circular proposing new rules of dividend payout for domestic and overseas banks operating in India. The proposed guidelines, set to be effective from fiscal year 2024-25 onwards, come as a response to the evolving financial landscape and the need to align with global standards. RBI has sought public feedback on the proposed norms by January 31 and the circular will be implemented from April 2024 onwards.
The proposal says banks with net non-performing asset ratio (NNPA) of above 6% and capital adequacy ratio (CRAR) of below 11.5% cannot declare dividends.
The Reserve Bank has undertaken a comprehensive review of the extant regulations on the declaration of dividends and remittance of profits.
RBI’s circular further stated that banks must compute dividends basis the “dividend payout ratio” which essentially is the ratio between the amount of the dividend payable in a year and the net profit for the financial year for which the dividend is proposed. The proposed dividend payable shall include dividend on equity shares only.