RBI proposal: Banks with less than 6% net NPAs must declare dividend

New Delhi, January 2

The Reserve Bank of India (RBI) on Tuesday proposed allowing banks with a net non-performing asset (NPA) ratio of less than 6 per cent to declare dividends as against the existing norm of net NPA ratio of up to 7 per cent.

“The net NPA ratio for the financial year for which the dividend is proposed shall be less than 6 per cent,” said the RBI’s draft guidelines on dividend declaration. The guidelines have been reviewed in the light of implementation of Basel III standards, the revision of the prompt corrective action framework, and the introduction of differentiated banks and should come into effect from the 2024-25 fiscal onward, said the RBI.

The draft also lays down directions need to be followed by banks’ boards while considering proposals of dividend payouts, which include consideration on divergence in classification and provisioning for NPAs as well.

A commercial bank should have a minimum total capital adequacy of 11.5 per cent to be eligible for declaring dividend, while the same for a small finance bank and payment banks has been set at 15 per cent, and 9 per cent for local area banks and regional rural banks, the draft circular said.

The RBI has proposed increasing the upper ceiling on dividend payout ratio — which is the ratio between the amount of the dividend payable in a year and the net profit — to 50 per cent if the net NPA is zero from the earlier ceiling of 40 per cent. There will also be no acceptance of any request for “ad-hoc dispensation on declaration of dividend”. Foreign banks can remit net profit or surplus (net of tax) of a quarter or a year earned in from Indian operations without the central bank’s prior approval.

New guidelines

The guidelines have been reviewed in the light of implementation of Basel III standards, revision of the prompt corrective action framework and the introduction of differentiated banks and should come into effect from the 2024-25 fiscal onward