Banks Can Declare Dividends Only After Meeting Capital Norms: RBI Draft Framework

(MENAFN- IANS) Mumbai, Jan 6 (IANS) Banks will be allowed to declare dividends or remit profits only if they meet strict financial and regulatory conditions, according to a draft framework released by the Reserve Bank of India (RBI) on Tuesday.

The move aims to ensure that profit payouts do not weaken the financial health of banks.

Under the proposed rules, banks must comply with all regulatory capital requirements at the end of the previous financial year and continue to meet these norms in the year when dividends are paid.

The RBI has made it clear that capital levels must remain above prescribed thresholds even after dividend distribution.

Indian banks will also be required to report a positive adjusted profit after tax for the relevant period, while foreign banks operating in India through branches must have positive profits in order to remit money to their head offices.

The central bank said banks that are under any specific restrictions imposed by the RBI or any other authority will not be eligible to declare dividends or remit profits.

This condition has been included to ensure that only well-managed and compliant banks reward shareholders or transfer profits overseas.

The draft directions come after the RBI reviewed the existing prudential norms governing dividend declarations and profit remittances, including those applicable to foreign banks operating in branch mode in India.

A draft of the revised framework was first released for public comments in January 2024, following which the RBI held consultations with stakeholders before proposing a revised method for calculating the maximum eligible dividend payout.

As per the draft, eligible foreign banks will be allowed to remit net profits earned from their Indian operations without prior approval from the RBI, provided their accounts are audited.

However, if any excess amount is remitted, it must be returned immediately by the head office.

The RBI has also tightened rules around profit calculation. Banks will have to exclude exceptional or extraordinary income while computing profit after tax.

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