Banking News

new dividend rules for banks: RBI proposes new dividend payment rule for banks, lenders with lower NPAs may offer higher dividends


The Reserve Bank of India said that banks with net non-performing assets (NPA) ratio less than 6% and capital adequacy above the minimum regulatory thresholds for the past three financial years should be eligible to declare dividends.

In a draft circular released Tuesday, the regulator proposed a revised the graded dividend payout policy with a higher ceiling on dividend payment to 50% from 40% earlier. The lower the net NPA ratios, the higher would be the dividend payout.

Higher payout ratios would boost earnings of the government, which holds majority shares in public sector banks. The government owns over 90% in several of them.

The net NPA eligibility rule, proposed to be tightened from the previous 7%, won’t hurt the payout ratio as most lenders have managed to improve their asset quality over the past few years.

The banking regulator said that dividend payout ratio can be up to 50% for banks with no net NPA for the financial year for which the dividend is proposed. The ratio can be a maximum of 15% if net NPA is more than 4%.

The dividend payout ratio is the ratio between the amount of the dividend payable including interim dividends and net profits for the year. The central bank has suggested any exceptional items inflating net profit be deducted first from the bottom-line while calculating the dividend payout ratio.The regulator said it would not entertain any request for ad hoc dispensation for paying dividend. Foreign banks that operate through branch mode in India would be allowed to remit a part of their profit too if they satisfy the eligibility criteria as set for local banks. No prior approval would be required for this if the accounts are audited and in the event of excess remittance, the head office of the bank makes good the shortfall immediately.


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