Mumbai, March 10 The Reserve Bank of India on Tuesday issued revised prudential norms governing dividend declaration by banks after examining feedback from stakeholders on the draft guidelines.
Among the key changes, the RBI has eased the method of calculating "Adjusted Profit After Tax (PAT)" used to determine dividend eligibility.
While the draft guidelines proposed deducting 100 per cent of net non-performing assets (NPAs) from profit, the final framework requires banks to deduct only 50 per cent of net NPAs.
The central bank said deducting the full value of net NPAs, assuming zero recovery, could be overly conservative, while deducting NPAs from core capital would weaken the link between dividend eligibility and asset quality.
The RBI had, on January 6, placed draft guidelines for public consultation covering dividend declaration norms for different categories of banks, including commercial banks, small finance banks, payment banks, local area banks and regional rural banks.
After reviewing the feedback received from stakeholders, the RBI said it has incorporated suitable modifications and issued the final set of directions.
Accordingly, the RBI has released five Master Directions governing prudential norms on dividend declaration and remittance of profits across banking entities. The revised framework will come into effect from the financial year 2026-27.
Until then, the existing prudential norms on dividend declaration and remittance of profits will continue to remain in force up to FY 2025-26.
After reviewing industry feedback, the central bank retained the proposed implementation timeline and said the revised directions will come into effect from the financial year 2026-27.
Some stakeholders had sought deferring the guidelines until the rollout of the Expected Credit Loss (ECL) framework, but the RBI rejected the suggestion, stating that the two frameworks deal with separate subjects.
The RBI also clarified that boards of banks must consider divergence in asset classification, auditors' reports and both current and projected capital positions while deciding on dividend payouts, and that the same prudential requirements apply to interim dividends as well.