RBI issues draft norms for dividend declaration by banks

The Reserve Bank of India (RBI) on Tuesday came out with draft norms on declaration of dividend by banks and remittance of profits to head office by foreign bank branches in India.

The RBI circular explains the detailed eligibility criteria and guidelines on board oversight that are required.

The prudential requirements for banks to be eligible to declare dividends or remit profits include the need to meet the applicable regulatory capital requirement for each of the last three financial years including the financial year for which the dividend is proposed.

Another prudential requirement is that the net NPA ratio, for the financial year for which the dividend is proposed, shall be less than six per cent.

The Board of Directors or the bank’s management will have to consider the divergence in classification and provisioning for Non-Performing Assets (NPAs), including its trend. Current and projected capital position vis-a-vis applicable capital requirement; and long term growth plans of the bank also have to be taken into consideration.

RBI said the earlier guidelines have been reviewed in the light of implementation of Basel III standards, the revision of the prompt corrective action (PCA) framework, and the introduction of differentiated banks.

Comments on the draft circular are invited from banks, market participants, and other stakeholders by January 31, 2024, the RBI said.