RBI tightens dividend payouts for banks: Here's why
The Reserve Bank of India is tightening the rules for how much money banks can give out as dividends, making payouts depend on how strong a bank's finances are.
The new guidelines — the source does not specify when the RBI released draft guidelines or the exact date the updated directions were issued, and it does not state an effective fiscal year — will apply to most big banks but skip small finance and rural banks.
How much can banks pay out
Banks will only be able to pay dividends if they meet strict capital requirements before and after payouts; this requirement applies to commercial banks covered by the RBI framework and excludes small finance banks, payments banks, local area banks and regional rural banks.
They also need to show real profits, after subtracting bad loans, and for banks incorporated in India the overall cap is 75% of those profits, subject to a CET1-linked graded structure and some special higher caps for certain local and regional bank categories.
How much each bank can pay depends on its CET1 ratio (a key measure of financial health): the higher it is, the more they can share with shareholders.
Dividend totals
The source does not provide specific dividend totals for the previous year.
With these new rules, RBI wants banks to keep enough cash on hand for tough times while still rewarding shareholders when things are going well.
For anyone interested in how money moves or what keeps your bank safe, this is a pretty big shift.