Reserve Bank of India (Small Finance Banks – Prudential Norms on Declaration of Dividend) Directions, 2026

1. Where the power comes from

RBI issues these rules under the Banking Regulation Act.

2. Why RBI issued them

RBI states it is satisfied these rules are needed in the public interest.

BankPulse example. RBI does not have to explain each rule one by one. It states that it is satisfied the rules are necessary and expedient in the public interest. That statement is the legal footing for everything that follows.

3. When they start

The rules apply from the financial year 2026-27.

4. Who is covered

These rules bind small finance banks.

5. What adjusted profit means

Adjusted profit after tax is the year's profit less half of net bad loans at 31 March.

6. What a dividend means

A dividend here is one on equity shares and includes an interim dividend.

7. Preference shares are out

A dividend on perpetual non-cumulative preference shares is not covered.

8. Unusual profit defined

Extraordinary profit takes its meaning from the accounting standards.

9. Words not defined here

Any word these rules do not define takes its meaning from the law or from ordinary trade use.

1. Capital after paying

Capital must not fall below the requirement even after the dividend is paid.

2. No restriction in force

The bank must not be under any express restriction on declaring a dividend.

3. The whole payout ceiling

Whatever the table allows, the total may not exceed 75 per cent of profit after tax.

4. The floor for paying

A bank at or below 7.5 per cent may pay nothing.

5. The top of the table

A bank above 19.5 per cent may pay the whole of its adjusted profit after tax.

6. Unusual profit is barred

Exceptional or extraordinary profit may not be used to pay a dividend.

7. An overstated profit is barred

Profit the auditor says is overstated may not be used, to that extent.

8. No Level 3 gains

A bank may not pay a dividend out of unrealised gains on Level 3 instruments.

9. The board must decide

The board must consider four things before it proposes a dividend.

10. Supervisory findings count

It must weigh any divergence RBI found in how bad loans were classified and provided for.

11. The auditor's report counts

It must weigh the auditor's report, including a modified opinion or an emphasis of matter.

12. Capital position counts

It must weigh capital now and as projected against what the bank must hold.

13. Growth plans count

It must weigh the bank's long term growth plans.

14. What this book does

This book sets what a bank must satisfy before it declares a dividend, and how much it may pay.

15. Profit must be positive

Adjusted profit after tax must be positive for the year the dividend is proposed for.

16. The amount is a table

A bank that qualifies reads its permitted share off a table of ten buckets.

17. Which ratio decides

How much may be paid is read against the bank's tier 1 capital ratio at the end of last year.

18. Worked examples exist

RBI gives worked illustrations in an annex to the document.

19. Where reversals are dealt with

Reversed provisions and unrealised profit on transferred loans follow a separate RBI rulebook.

1. What was already gone

Anything repealed before these rules came stays repealed.

2. Past action stands

Anything done under a repealed instruction stays governed by that instruction.

3. Old approvals carry over

Approvals given under the repealed instructions are treated as given under these rules.

4. Other law still applies

These rules add to other laws and take nothing away from them.

5. RBI may clarify

RBI may issue clarifications to remove any difficulty in applying these rules.