RBI has proposed capping banks’ dividend payouts at 75% of profit after tax.
The dividend cap will be graded based on CET1 capital levels.
Additional buffers for systemically important banks (D-SIBs) will also apply.
The Reserve Bank of India on Tuesday issued a proposal aimed at limiting banks’ ability to pay out dividends to shareholders. The banking regulator wants to cap dividends at “not more than 75% of profit after tax” under its new ‘Prudential Norms on Declaration of Dividend and Remittance of Profits.’
The norms will come into effect from FY27. For now, the regulator has invited comments on the proposal until February 5.
1 January 2026
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The cap will be applied in a graded manner based on banks’ common equity tier 1 (CET1) capital levels. Banks with weaker capital positions will not be allowed to pay dividends at all, while better-capitalised banks will be permitted to pay higher dividends. For instance, banks with CET1 levels just above the minimum requirement can pay only 20–30% of adjusted profit after tax, while banks with strong capital buffers can pay up to 100% of adjusted profit, subject to the overall 75% cap.
Any additional buffer required for systemically important banks (D-SIBs) is also factored into this calculation. This means banks such as State Bank of India (SBI), HDFC Bank and ICICI Bank would need even stronger CET1 ratios if they plan to pay dividends amounting to 100% of their adjusted net profit.
Foreign banks operating in India through branches can send their profits to their head offices without prior RBI approval, provided they meet the eligibility criteria. These profits must arise from normal business operations in India and be net of taxes. Their accounts must be audited, and if more money is remitted than permitted, the excess must be immediately returned by the head office.
When calculating profits for dividend payments or remittances, banks will have to exclude exceptional or one-time income and any profits that auditors believe are overstated. Banks are also not allowed to pay dividends or remit profits from unrealised gains, such as paper profits arising from the valuation of complex financial instruments, including derivatives.
In addition, rules on the treatment of reversed provisions or profits from loan transfers backed by government guarantees will continue to follow existing RBI credit risk transfer guidelines.
A day after the proposal was released, the Nifty Bank index slipped 0.21% to 59,990.85, dragged mainly by SBI, which fell 1.18%, and Canara Bank and Bank of Maharashtra, both down more than 1%. The Nifty PSU Bank index also closed lower, down 0.27%, as declines in PNB, UCO Bank, IOB and Indian Bank outweighed gains elsewhere.
On the positive side, Bank of Baroda rose 1.08%, while Bank of India and Union Bank posted modest gains.
