What changed
RBI partially modified the May 2005 dividend circular, capping commercial bank dividends at 50% of the payout ratio for FY21. Cooperative banks remain under extant instructions. All banks must meet minimum regulatory capital after dividend payment.
What it means for you
Banks face tighter dividend distribution to conserve capital during the second COVID wave. Lenders must reassess payout plans and ensure capital buffers are adequate. Boards bear responsibility for considering economic outlook and provision adequacy.
What you must do
- Calculate dividend payout using 50% of the ratio from the May 2005 circular for FY21 profits.
- Verify post-dividend capital ratios meet minimum regulatory requirements.
- Board must document consideration of current/projected capital, provisions, and economic outlook.
- Cooperative banks should follow existing dividend instructions without change.
Who it affects
All commercial banks, All cooperative banks, Bank boards of directors
What is the new dividend cap for commercial banks?
Dividend on equity shares for FY21 is capped at 50% of the payout ratio prescribed in the May 2005 circular.
Are cooperative banks affected by this change?
No, cooperative banks continue to follow extant dividend instructions without modification.
What must the board consider before declaring dividends?
The board must assess current and projected capital, provision adequacy, economic environment, and profitability outlook.