MUMBAI: RBI has issued draft rules to tighten dividend payouts by banks by linking distributions to capital adequacy, asset and profit quality, setting a uniform prudential framework effective from FY27. In the previous financial year, banks paid over Rs 75,000 crore dividend after booking record profits.Under RBI’s draft rules, dividend payments by banks will be governed by a common set of conditions from FY27. The directions apply to all banking companies, corresponding new banks and SBI, and to foreign banks operating in India in branch mode. Small finance banks, local area banks, payments banks, and regional rural banks are excluded from the framework.According to the draft, a bank can declare an equity dividend, or remit profits in the case of foreign bank branches, only if it meets all eligibility conditions. These include compliance with minimum regulatory capital requirements and buffers, including the additional buffer for domestic systemically important banks, at the end of the previous financial year and after the proposed dividend payout. Capital ratios must not fall below regulatory thresholds after the dividend is paid. Indian-incorporated banks must report a positive adjusted profit after tax for the year in which the dividend is proposed, calculated as profit after tax minus net NPAs. Foreign banks in branch mode must report positive profit after tax for the relevant period. If any of these conditions is not met, the bank cannot declare a dividend or remit profits for that period, and no special dispensation will be allowed. RBI has retained the right to impose restrictions where a bank is found to be non-compliant with laws or regulatory guidelines.The framework links dividend payouts directly to capital strength through a graded structure based on common equity tier 1 ratios.
