What is the RBI's new dividend distribution limit for banks?

The RBI has proposed allowing banks to distribute up to 75% of their net profit as dividends, an increase from the previous 45%.

How does the RBI's new dividend policy benefit the government?

The government, as a major shareholder in public sector banks, could receive a larger share of the sector's recent profit boom due to higher dividend payout caps.

What criteria must banks meet for higher dividend payouts under the new RBI rules?

Banks must meet certain prudential conditions, including sustained profitability, asset quality thresholds, and strong Common Equity Tier-1 (CET-1) ratios.

Home / Business and Economy / RBI Raises Bank Dividend Payouts to 75%

RBI Raises Bank Dividend Payouts to 75%

16 Jan

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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.