RBI tightens dividend payout norms of banks

The bank should comply with the prevailing regulations/ guidelines issued by RBI, including creating adequate provisions for impairment of assets and staff retirement benefits, transfer of profits to statutory reserves and investment fluctuation reserve, the RBI said.

According to market sources, the new guidelines will put selling pressure in bank stocks when the market reopens for trading on Monday.

The RBI said quantum of dividend payable banks which qualify to declare dividends should not exceed 33.33 pc. The proposed dividend should be payable out of the current year’s profit.

Dividend payout ratio is calculated as a percentage of ‘dividend payable in a year’ (excluding dividend tax) to ‘net profit during the year’.

In case the profit for the relevant period includes any extra-ordinary profits/ income, the payout ratio should be computed after excluding such extra-ordinary items for reckoning compliance with the prudential payout ratio ceiling of 33.33 pc, it clarified.

The RBI warned the financial statements pertaining to the fiscal year for which the bank is declaring a dividend should be free of any qualifications by the statutory auditors, which have an adverse bearing on the profit during that year.

In case of any qualification to that effect, the net profit should be suitably adjusted while computing the dividend payout ratio, it said. Banks, which comply with the above requirements but desire to declare dividends should obtain prior approval of RBI for declaration of such higher dividend. The RBI would consider the requests received from banks on a case-to-case basis, it added.

The policy approach adopted by the Reserve Bank with regard to payment of dividends by banks has been recently reviewed in consultation with the Standing Technical Advisory Committee on Financial Regulation (STACFR) and it has been decided that the regulatory focus with regard to payment of dividend by banks should shift from ‘quantum of dividend’ to ‘dividend payout ratio’.