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Informist, Tuesday, Jan. 6, 2026

 

--RBI invites comments on draft norms on dividend, remittance of profit 

--RBI seeks feedback on draft dividend, remittance of profit norms by Feb 5 

 

NEW DELHI – The Reserve Bank of India on Tuesday sought feedback on draft norms for the declaration of dividends by banks and remittance of profits by foreign banks operating in branch mode in India. The central bank has set rules on board oversight, eligibility criteria, and the amount of dividends payable.

 

According to the central bank, the bank board should consider the divergence in classification and provisioning for non-performing assets, including its trend, before declaring dividends. Other aspects to keep in mind include the auditors' report on the financial statements, the current and projected capital position, capital requirements, and long-term growth plans.

 

Banks should also meet specific prudential requirements before declaring dividends or remitting profits. First is capital adequacy. According to the draft norms, banks must maintain an adequate regulatory capital buffer even after the dividend payment at the end of the previous financial year and for the financial year in which the dividend is paid. 

 

"The bank incorporated in India shall have positive adjusted Profit After Tax for the period for which the dividend is proposed," the draft norms said. "A foreign bank operating in India in the branch mode shall have positive PAT for the period for which the profits are to be remitted to the Head Office."

 

The draft directions apply to commercial banks, small finance banks, payment banks, regional rural banks and local area banks. The central bank has sought comments on the draft norms by Feb. 5, and the directions will come into effect from 2026-27 (Apr-Mar).

 

The central bank set the formula for calculating prescribed dividend payout limits and capped it at 75% of net profit for commercial banks, small finance banks, and payments banks. However, dividend payout is capped at 80% of net profit for regional rural banks and local area banks. 

 

As per the draft norms, the dividend limit is calculated based on the total capital adequacy, including the graded level of the Common Equity Tier 1 ratio and the 'D-SIB (domestic systemically important banks) buffer'. Domestic Systemically Important Bank buffer is an additional layer of capital that large, critical banks must hold, making them more resilient to economic shocks, as their failure would severely harm the economy. 

 

As per the draft circular, a foreign bank operating in India in branch mode may remit the net profit or surplus for a quarter or year, earned in the normal course of business from its Indian operations, without prior RBI approval. This is provided that the bank's accounts are audited, and in the event of an excess remittance, the head office of the foreign bank immediately makes good the shortfall.

 

Banks declaring dividends or remitting profits to the head office will report the details to the RBI's Department of Supervision within a fortnight of the declaration or remittance. Additionally, banks should pay dividends only on equity shares, according to the draft circular.

 

In case the net profit for the relevant period includes any exceptional or extraordinary profits or income, or if the financial statements are qualified by the statutory auditor that indicates an overstatement of net profit, it will be reduced from net profit while determining the dividend payout ratio. The dividend payout ratio is the ratio between the amount of the dividend payable in a year and the net profit as per the audited financial statements for the financial year for which the dividend is proposed. End

 

Reported by Priyasmita Dutta

Edited by Saji George Titus

 

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