RBI Proposes Relaxation Of Bank Dividend Payout Norms
The Reserve Bank of India (RBI) has proposed new guidelines that would allow banks with a net non-performing assets (NPAs) ratio of less than 6 per cent to declare dividends. Presently, banks are required to have an NNPA ratio of up to 7 per cent to be eligible for dividend declaration.
According to the draft guidelines released by the RBI on Tuesday, these proposed changes are being introduced considering the implementation of Basel III standards, the revision of the prompt corrective action (PCA) framework, and the introduction of differentiated banks. These guidelines are anticipated to take effect from the financial year 2025 onwards.
The proposal stipulates that commercial banks must maintain a minimum total capital adequacy of 11.5 per cent to be eligible for declaring dividends. Additionally, small finance banks and payment banks need to maintain capital adequacy at 15 per cent, while local area banks and regional rural banks are required to have a capital adequacy of 9 per cent for dividend declaration eligibility.
Moreover, the RBI is considering increasing the upper ceiling on the dividend payout ratio. This ratio, which calculates the dividend payable in a year against the net profit, might be raised to 50 per cent if a bank has zero net NPAs, up from the earlier cap of 40 per cent.
The draft guidelines also explicitly state that the Reserve Bank will not entertain any requests for "ad-hoc dispensation" regarding the declaration of dividends, emphasising a stringent approach toward such requests in the future.
