RBI proposes to cap banks’ dividend payout at 75% of their profit after tax

Mumbai: The RBI on Tuesday proposed norms for dividends by banks by capping the payout to shareholders at 75 per cent of their net profit.

The Reserve Bank defines ‘dividend’ as an amount payable on equity shares and includes interim dividend, but excludes dividend on Perpetual Non-Cumulative Preference Shares (PNCPS).

The RBI has issued draft Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profits) Directions, 2026, proposing a new methodology for computing the maximum eligible dividend payout.

The Board of Directors should consider long-term growth plans and capital position while considering a proposal for the declaration of dividends or remittance of profit. Also, banks must have a positive adjusted profit after tax (PAT) for the period for which the dividend is proposed.

A foreign bank operating in India in the branch mode should have positive PAT for the period for which the profits are to be remitted to the head office.

“A bank incorporated in India...may declare and pay dividend up to the limits prescribed...but in aggregate not exceeding 75 per cent of the PAT for the period for which the dividend is being proposed,” said the draft on which the RBI has sought comments till February 5.

The Reserve Bank will reserve the right to place restrictions on the distribution of dividends or remittance of profit where a bank is found to be non-compliant with applicable laws, regulations and guidelines, the draft said.

The RBI has proposed a higher cap of 80 per cent of PAT in the case of regional rural banks and local area banks.