RBI releases new rules for Dividend paid by Banks, Understand New Rules and 75% Capping
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The Reserve Bank of India (RBI) has released new rules for dividend payment by banks. The RBI has released a draft circular – Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittances of Profits) Directions, 2026.
Eligibility criteria for Declaring Dividend
A bank shall meet the following prudential requirements, to be eligible to declare dividends or remit profits.
- The bank was in compliance with the applicable regulatory capital requirement as at the end of the previous financial year and shall continue to be in compliance as at the end of the financial year during which the dividend is proposed to be paid.
- The regulatory capital of the bank shall not fall below the applicable regulatory capital requirement even after the payment of dividend.
- The bank incorporated in India shall have positive adjusted Profit After Tax (PAT) for the period for which the dividend is proposed.
- A foreign bank operating in India in the branch mode, shall have positive PAT for the period for which the profits are to be remitted to the Head Office.
- The bank shall not be under any explicit restrictions for declaration of dividends or remittance of profits from the Reserve Bank or any other authority.
The Board of Directors while considering the proposal for declaration of dividend or remittance of profit of a bank shall consider the following:
- The divergence in asset classification and provisioning for Non-Performing Assets (NPAs), including its trend, as observed if any, under supervisory findings of the Reserve Bank.
- Auditors’ Report to the financial statements, including modified opinion or Emphasis of Matter, for the financial year for which the dividend is proposed.
- Current and projected capital position vis-à-vis applicable regulatory capital requirement (minimum plus buffers); and
- Long term growth plans.
Quantum of dividend payable by banks incorporated in India
A bank incorporated in India which satisfies the eligibility criteria laid down in paragraph 7 above, may declare and pay dividend up to the limits prescribed under Table below, but in aggregate not exceeding 75% of the PAT for the period for which the dividend is being proposed.
| Bucket | CET 1 ratio as at the end of previous FY | Dividend allowed as a % of adjusted PAT for the period |
| B1 | Up to (8 + z)% | 0 |
| B2 | Above (8 + z)% and up to (10 + z)% | 20 |
| B3 | Above (10 + z)% and up to (12 + z)% | 30 |
| B4 | Above (12 + z)% and up to (14 + z)% | 40 |
| B5 | Above (14 + z)% and up to (16 + z)% | 50 |
| B6 | Above (16 + z)% and up to (17 + z)% | 60 |
| B7 | Above (17 + z)% and up to (18 + z)% | 70 |
| B8 | Above (18 + z)% and up to (19 + z)% | 80 |
| B9 | Above (19 + z)% and up to (20 + z)% | 90 |
| B10 | Above (20 + z)% | 100 |
| Note: ‘z’ in Table 1 refers to the respective applicable D-SIB buffer. ‘z’ shall be zero for a bank not classified as D-SIB. | ||
Example 1: Computation of maximum permissible dividend for FY 20X1-X2
| Particulars | Amount (₹ Crore) |
| Net profit (PAT) for FY 20X1-X2 (A) | 17,000 |
| Net NPAs as on March 31, 20X2 (B) | 6,500 |
| Adjusted PAT, i.e., (C) = (A) – (B) | 10,500 |
| CET 1 ratio capital as on March 31, 20X1 (D) | 11.72% |
| The CET1 ratio falls in bucket B3 | |
| 75% of PAT(E) | 12,750 |
| Max payable as per Table 1 (30% of 10,500) (F) | 3,150 |
| Maximum Eligible Dividend (i.e., Lower of E or F) | 3,150 |
| Maximum Eligible Dividend as percentage of PAT | 18.52% |
Example 2: Computation of maximum permissible dividend for a D-SIB bank having minimum regulatory requirement of CET1 of 8.2% (including D-SIB buffer) for FY 20X1-X2
| Particulars | Amount (₹ Crore) |
| Net profit (PAT) for FY 20X1-X2 (A) | 40,500 |
| Net NPAs as on March 31, 20X2 (B) | 5,000 |
| Adjusted PAT i.e., (C) = (A)-(B) | 35,500 |
| CET 1 ratio as on March 31, 20X1 (D) | 15% |
| The CET1 ratio falls in bucket B5 | |
| 75% of PAT(F) | 30,375 |
| Max payable as per Table 1 (50% of 35,500) (G) | 17,750 |
| Maximum Eligible Dividend (i.e., Lower of F or G) | 17,750 |
| Maximum Eligible Dividend as percentage of PAT | 43.82% |
Example 3: Computation of maximum eligible dividend for FY 20X1-X2
| Particulars | Amount (₹ Crore) |
| Net profit (PAT) for FY 20X1-X2 (A) | 1500 |
| Net NPAs as on March 31, 20X2 (B) | 300 |
| Adjusted PAT, i.e., (C) = (A) – (B) | 1,200 |
| CET 1 ratio as on March 31, 20X1 (D) | 24.36% |
| The CET1 ratio falls in bucket B10 | |
| 75% of PAT (E) | 1,125 |
| Maximum payable as per Table (100% of 1,200) (F) | 1,200 |
| Maximum Eligible Dividend (i.e., G = Lower of E or F) | 1,125 |
| Maximum Eligible Dividend as percentage of PAT | 75% |
| Interim dividend paid for FY 20X1-20X2 (H) | 500 |
| As the bank has already paid interim dividend of ₹500 crore, the final dividend shall not be more than (G) – (H) | 625 |
Remittance of profits by foreign banks operating in India in branch mode
A foreign bank operating in India in branch mode, that satisfies the eligibility criteria as specified above, may remit net profit / surplus (net of tax) earned in the normal course of business arising out of its Indian operations, without prior approval of the Reserve Bank, subject to the conditions that the accounts of the bank are audited and in the event of excess remittance, if any, the Head Office of that foreign bank immediately shall return the excess remittance and make good the shortfall.
Deductions from Profit After Tax (PAT)
As regards calculation of PAT for the purpose of these directions, a bank shall adhere to the following:
- In case the PAT for the relevant period includes any exceptional and / or extra-ordinary profits / income, or if audit report by the statutory auditor contains a modified opinion (including ‘emphasis of matter’) that indicates an overstatement of the PAT, the same shall be deducted from PAT to the extent it is included in PAT.
- In terms of Reserve Bank of India (Commercial Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025, a bank shall not pay dividend or repatriate profits out of net unrealised gains arising on fair valuation of Level 3 financial instruments (including derivatives).
- The prudential treatment of reversal of excess provision, dividend payment or remittance of profits by a bank on reversal of such provisions and unrealized profits arising on account of transfer of loans and Security Receipts guaranteed by the Government of India shall be guided by the instructions contained in the Reserve Bank of India (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025.
RBI Draft Circular on Dividend Payment by Banks
