RBI Update: In the coming days, only those banks whose net NPA is less than 6 percent can declare dividend to their shareholders. Banking sector regulator Reserve Bank of India has issued draft guidelines regarding declaring dividend in which this proposal has been made. Under the rules of 2005, earlier only those banks whose NPA was less than 7 percent could declare dividend.
RBI said in the draft guidelines issued regarding declaring dividend, that the net NPA ratio should be less than 6 percent for the financial year for which the dividend is being declared. RBI said that guidelines have been issued after reviewing the rules related to dividend keeping in mind the Basel III standard brought for financial stability, amendment in PCA framework (Prompt Corrective Action Framework) and the beginning of separate banks for special purposes. .
RBI has proposed to implement the new guidelines from the financial year 2024-25. Suggestions have been sought from stakeholders on this proposal till January 31, 2024. RBI has asked the boards of banks to follow the instructions while considering the proposals for giving dividend in the draft guidelines.
To be eligible to declare dividend, a commercial bank must have a minimum capital adequacy ratio of 11.5 percent. Whereas in the case of small finance banks and payment banks, this ratio has been fixed at 15 percent and for local regional banks and regional rural banks, this ratio has been fixed at 9 percent.
RBI has also proposed to increase the upper limit on dividend payout ratio from 40 percent to 50 percent. This proposal can be seen as a concession to the existing norms. In case of foreign banks, RBI has said that they can remit to their country the net profit or surplus of one quarter or one year earned from Indian operations without its prior permission.
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