What changed
Previously, banks could declare dividends up to a 33.33% payout ratio without RBI approval under certain criteria. Now, general permission is granted to all eligible banks, with a matrix-based payout ratio up to 40% for the highest category, removing case-by-case approval.
What it means for you
Banks with strong capital adequacy and asset quality can now distribute higher dividends to shareholders, improving investor returns. However, banks must ensure compliance with prudential norms, including adequate provisioning and board oversight, to avoid regulatory restrictions.
What you must do
- Verify your bank's CRAR is at least 9% for the preceding two years and the current year, and net NPA is below 7% (or below 5% if CRAR is only met for the current year).
- Ensure compliance with Sections 15 and 17 of the Banking Regulation Act, 1949, and all RBI guidelines on provisioning and reserves.
- Calculate dividend payout ratio as per the matrix in Annex 1, excluding extraordinary profits and adjusting for auditor qualifications or IFR shortfalls.
- Place these guidelines before the board and consider RBI inspection findings, auditor qualifications, Basel II requirements, and long-term growth plans when deciding dividends.
- Report dividend declarations to RBI as per the prescribed reporting system.
Who it affects
All scheduled commercial banks (except RRBs), Bank boards and management, Shareholders and investors
What is the new maximum dividend payout ratio?
The maximum dividend payout ratio is up to 40% only for banks in Category A (CRAR 11%+ for last 3 years) with zero net NPA; lower ratios apply for other categories and NPA bands per Annex 1.