RBI Relaxes Dividend Payout Norms and Allows Commercial Banks to Pay up to 50 percent

The Reserve Bank of India (RBI) eased commercial banks' dividend payout norms on Thursday, allowing them to pay up to 50 percent of what they paid before Covid from income for the fiscal year ending March 31, 2021.

For FY20, the RBI had asked banks not to make any dividend payment on equity shares from the profits in view of the ongoing stress and heightened uncertainty on account of Covid-19. HDFC Bank had last week decided not to pay any dividend on the basis of the previous year’s RBI directive.

“In partial modification of the instructions, banks may pay dividend on equity shares from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than 50 percent of the amount determined as per the dividend payout ratio prescribed in paragraph 4 of the May 4, 2005 circular. Other instructions in the circular shall remain unchanged,” the RBI said.

Cooperative banks are permitted to pay dividend on equity shares from the profits of the financial year ended March 31, 2021, as per the extant instructions, the RBI said. However, all banks must continue to meet the applicable minimum regulatory capital requirements after dividend payment, it added.

“While declaring dividend on equity shares, it shall be the responsibility of the board of directors to inter-alia consider the current and projected capital position of the bank vis-à-vis the applicable capital requirements and the adequacy of provisions, taking into account the economic environment and the outlook for profitability,” the RBI said.

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