The Reserve Bank of India (RBI) has introduced new rules for how banks can distribute dividends to their shareholders.
Under the updated framework, banks will now be allowed to pay a maximum of 75% of their profits as dividends.
These new guidelines will come into effect from the financial year 2026–27 and will replace the earlier rules issued in November 2025.
The regulations will apply to commercial banks, small finance banks, payment banks, local area banks, and regional rural banks.
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Maximum 75% Dividend Payout Allowed
According to the RBI’s new framework, a bank’s dividend payout ratio cannot exceed 75% of its Profit After Tax (PAT).
Even if a bank has strong capital levels and is capable of paying more dividends, it will still not be allowed to distribute more than 75% of its profit.
This rule has been introduced to ensure that banks keep enough capital for future stability and growth.
New Formula to Calculate Dividends
The RBI has also introduced a new concept called Adjusted Profit After Tax (Adjusted PAT) to determine how much dividend a bank can pay.
Under the new formula:
Adjusted PAT = Profit After Tax – 50% of Net NPAs
This means banks must deduct 50% of their net Non-Performing Assets (NPAs) from their total profit first.
The remaining amount will then be used to calculate the dividend payout.
In simple terms, if a bank has higher bad loans (NPAs), the profit considered for dividends will be lower.
Why RBI Included NPAs in the Calculation
The RBI said this change will help banks maintain stronger capital reserves while also considering risks related to asset quality.
By linking dividend payouts with NPAs, the central bank aims to strengthen the financial stability of banks and improve their capital buffers.
This will make the banking system more resilient during economic stress.
Banks Must Inform RBI After Declaring Dividends
Banks that decide to declare dividends will now have to report the details to the RBI’s Department of Supervision within two weeks.
If any bank fails to follow these rules, the RBI has the authority to stop dividend payments and take legal action against the bank.