RBI Proposes Higher Dividend Payout Limits for Banks

The Reserve Bank of India (RBI) has proposed a major change in how much dividend banks can distribute to shareholders. Under a new draft framework, banks may be allowed to pay out up to 75% of their net profit as dividends, a sharp increase from the earlier limit of 40%. The proposal aims to balance better shareholder returns with stronger capital discipline and long-term stability.

Dividend Payout Linked to Capital Strength

The RBI has suggested a graded dividend structure based on a bank’s Common Equity Tier 1 (CET1) capital ratio, which measures core capital strength. Banks with stronger capital buffers will be allowed to distribute higher dividends.

Banks with CET1 ratios above 20% may be eligible to pay dividends of up to 100% of their adjusted net profit, although this will still be capped by the overall 75% payout limit. Adjusted net profit will be calculated after deducting net non-performing assets for the dividend year.

On the other hand, banks with CET1 ratios below 8% will not be allowed to declare any dividend, reflecting the RBI’s focus on protecting balance sheet strength.

Stricter Rules for Systemically Important Banks

Large banks that are considered systemically important will face even tighter capital requirements. State Bank of India, HDFC Bank and ICICI Bank will need higher CET1 ratios than other banks if they want to distribute the maximum possible dividend.

For example, SBI would need a CET1 ratio of around 20.8%, while HDFC Bank and ICICI Bank would need about 20.4% and 20.2%, respectively. This reflects the greater responsibility these banks carry for financial system stability.

Board Oversight and Profit Adjustments

The RBI has also placed greater responsibility on bank boards. Before declaring dividends, boards must review asset quality, provisioning gaps, future capital needs and long-term growth plans.

Any overstatement of profits will need to be corrected. Exceptional or extraordinary income, as well as profits flagged by auditors as overstated, must be deducted while calculating distributable profits.

Applicability and Foreign Banks

The proposed rules will apply from financial year 2026–27. Banks must be profitable and meet minimum capital norms to declare dividends. Foreign banks operating in India through branches may remit dividends without prior RBI approval, but excess remittances discovered later must be returned.

Read more: PIB Fact Check: RBI Not Stopping ₹500 Notes From ATMs in March 2026.

Conclusion

The RBI’s proposal marks a shift towards more flexible dividend payouts, while firmly linking them to capital strength and governance standards. If implemented, the new framework could improve shareholder returns without compromising the financial resilience of the banking system.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.