What changed
RBI has consolidated and updated prudential norms for dividend declaration by Payments Banks into a single, comprehensive direction effective from FY 2026-27. The new framework introduces a clear eligibility criteria, a tiered dividend payout cap linked to the bank's Tier 1 capital ratio, and mandates board oversight on asset quality divergence and auditor reports. It also defines 'adjusted PAT' as PAT minus 50% of net NPAs, ensuring dividends are paid only from sustainable profits.
What it means for you
Payments Banks must now meet stricter capital and asset quality thresholds before declaring dividends, aligning them with other commercial banks. The tiered payout structure incentivizes stronger capital buffers, as banks with higher Tier 1 ratios can distribute a larger share of adjusted profits. Lenders need to reassess their dividend policies and capital planning to ensure compliance, as non-compliance could invite penal consequences.
What you must do
- Review your bank's Tier 1 capital ratio as at end of previous FY to determine the applicable dividend payout bucket.
- Calculate adjusted PAT by deducting 50% of net NPAs from PAT for the dividend-proposing year.
- Ensure board considers divergence in asset classification, auditor's report, capital position, and growth plans before approving dividend.
- Confirm that regulatory capital remains above minimum requirements both before and after dividend payment.
- Submit required reporting to RBI as per the new directions and avoid any explicit restrictions on dividend declaration.
Who it affects
Payments Banks operating in India, Board of Directors of Payments Banks, Finance and compliance teams of Payments Banks, RBI supervisory departments
What is the maximum dividend a Payments Bank can declare under the new norms?
The dividend cannot exceed 75% of the PAT for the period, and is further capped at a percentage of adjusted PAT based on the bank's Tier 1 capital ratio as per Table 1 in the directions.
How is 'adjusted PAT' calculated for dividend eligibility?
Adjusted PAT is the PAT of the financial year minus 50% of the net NPAs as on March 31 of that year. This ensures dividends are paid only after accounting for credit risk.
When do these directions take effect?
These directions come into effect from the financial year 2026-27, meaning they apply to dividends proposed for that year and onwards.