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RBI Raises Bank Dividend Payouts to 75%
16 Jan
Summary
- RBI allows banks to distribute up to 75% of net profit as dividends.
- This shift may increase government revenue from public sector banks.
- New rules link payouts more closely to a bank's core equity strength.
The Reserve Bank of India (RBI) has put forth new draft guidelines that could significantly alter how banks distribute profits to shareholders. The proposed framework permits banks to distribute up to 75% of their net profits as dividends, a substantial increase from the previous 45% cap. This revision aims to more closely align dividend payouts with a bank's core equity strength, moving away from a sole reliance on overall capital ratios.
The potential increase in dividend payouts is particularly beneficial for the government, which is the majority owner of public sector banks (PSBs). With PSBs demonstrating robust profitability in recent years, higher dividend caps suggest a larger flow of funds back to the government exchequer. Data from FY25 indicates PSBs declared ₹34,990 crore in dividends, with the government receiving ₹22,699 crore.
This regulatory shift emphasizes the Common Equity Tier-1 (CET-1) ratio as a key determinant for dividend eligibility, focusing on the quality of a bank's capital. While the revised framework offers headroom for higher payouts, industry experts caution that actual increases will depend on individual banks' balance sheets, sustained profitability, and asset quality. The new proposals are currently open for stakeholder feedback until February 5.
