The Reserve Bank of India (RBI) is expected to issue revised and potentially stricter norms for dividend distribution by banks, following extensive stakeholder consultations, sources tell CNBC-TV18. The move is likely in the wake of the draft guidelines released by the central bank in January 2024.Sources indicate that stakeholders, including the government, have recommended key changes to the draft, emphasising long-term value creation over high dividend payouts. There is a growing consensus that banks must prioritise building growth capital to support future credit expansion and maintain financial resilience.
Proposals under likely consideration could include the use of Return on Assets (RoA) as a metric for dividend eligibility, and tighter bands for Non-Performing Assets (NPAs).
Sources indicate the broad view is that capital adequacy alone is probably not an appropriate benchmark for dividend declaration by banks. This would otherwise enable any bank with a capital adequacy of over 11.5% to give a higher dividend. Instead, Return on Assets could be a fairer benchmark to gauge the profitability of banks and the efficiency of capital deployed by them.Also, a net NPA ratio of less than 6% was seen as too relaxed a condition for dividend payments. Not just this, the NPA range should move to a closer band of 0.5% as against the 1–2% band suggested by the central bank.All in all, stakeholders — largely the government — are of the view that banks need to be cash-rich and that dividend declarations by them cannot be treated the way CPSE dividends are declared.The final guidelines from the RBI are expected soon and could mark a shift toward a more measured and capital-conscious dividend framework for the banking sector.Also Read: Why the RBI dividend this year may be eye-popping(Edited by : Poonam Behura)
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