New Delhi [India], March 11 (ANI): The Reserve Bank of India (RBI) has introduced a new set of prudential norms for banks that cap dividend payouts at a maximum of 75 per cent of Profit After Tax (PAT) for most banks, linking profit distribution more closely with capital strength, profitability and regulatory compliance.

The central bank issued the Reserve Bank of India (Commercial Banks - Prudential Norms on Declaration of Dividend and Remittance of Profit) Directions, 2026 on March 10. These norms will come into effect from Financial Year (FY) 2026-27 and will replace the earlier directions issued on November 28, 2025.

Under the new framework, banks incorporated in India that meet the eligibility criteria will be allowed to declare dividends up to the limits prescribed but in aggregate not exceeding 75 per cent of the Profit After Tax for the relevant period.

The RBI said banks must satisfy several prudential conditions before declaring dividends or remitting profits. These include maintaining compliance with regulatory capital requirements at the end of the previous financial year and continuing to meet these requirements at the end of the financial year in which the dividend is proposed.

The regulator also stated that the regulatory capital of the bank must not fall below the applicable capital requirement even after the dividend payout.

Further, banks incorporated in India must have a positive adjusted Profit After Tax (PAT) for the period for which the dividend is proposed. In the case of foreign banks operating in India in branch mode, they must have a positive PAT for the period for which profits are to be remitted to their head office.

In addition, banks must not be under any explicit restrictions from the RBI or any other authority regarding declaration of dividends or remittance of profits.

The new prudential norms have also been extended to other categories of banks with similar conditions. For Small Finance Banks and Payment Banks, dividend payouts will also be capped at up to 75 per cent of the Profit After Tax, provided they meet the prescribed regulatory requirements.

Local Area Banks and Regional Rural Banks (RRBs) have been given a slightly higher limit. These banks will be allowed to declare dividends up to 80 per cent of the Profit After Tax, subject to compliance with the same prudential conditions laid down by the RBI.

For all these categories of banks, the RBI has mandated that the institutions must continue to meet regulatory capital requirements both before and after the proposed dividend payment and must report positive adjusted profits for the relevant financial year.

The central bank has also emphasised the role of bank boards in overseeing dividend decisions. According to the directions, boards will be responsible for ensuring compliance with the prudential framework, including eligibility conditions, payout limits and reporting requirements to the regulator.

The RBI has also clarified that certain categories of profits may be ineligible for distribution. The directions contain provisions specifying profits that cannot be used for payment of dividends or remittance of profits by foreign banks operating in India through branch mode.

The framework also introduces reporting requirements and restrictions on dividend payments, along with penal consequences in cases where banks fail to comply with the prescribed norms.

In the notification, the RBI said it has repealed the earlier directions in public interest.

'The Reserve Bank of India being satisfied that it is necessary and expedient in the public interest to do so, hereby repeals the Reserve Bank of India (Commercial Banks - Prudential Norms on Declaration of Dividends and Remittance of Profit) Directions, 2025... with effect from Financial Year (FY) 2026-27,' the RBI said.

Along with the main framework for commercial banks, the RBI has also issued additional directions extending similar prudential principles to other categories of banks.

These include the Reserve Bank of India (Payment Banks - Prudential Norms on Declaration of Dividend) Directions, 2026, Reserve Bank of India (Local Area Banks - Prudential Norms on Declaration of Dividend) Directions, 2026, Reserve Bank of India (Regional Rural Banks - Prudential Norms on Declaration of Dividend) Directions, 2026, and Reserve Bank of India (Small Finance Banks - Prudential Norms on Declaration of Dividend) Directions, 2026.

The RBI has also issued amendments to the guidelines on the Setting Up of Wholly Owned Subsidiaries (WOS) by Foreign Banks.

Under these amendments, wholly owned subsidiaries of foreign banks incorporated in India will be allowed to declare dividends in the same manner as domestic banks.

The RBI said the amendments will also come into force from FY 2026-27. (ANI)