New Prudential Norms on Dividend Payouts for Banks

On 10th March 2026, the Reserve Bank of India (RBI) issued the Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profit) Directions, 2026, capping dividend payouts for most banks at 75% of Profit After Tax (PAT).

The new framework will come into effect from Financial Year (FY) 2026–27 and replaces the earlier directions issued on November 28, 2025.

Key Points

Dividend Payout Cap: Banks incorporated in India can declare dividends up to 75% of Profit After Tax (PAT), subject to compliance with regulatory conditions.
Capital Adequacy Requirement: Banks must maintain regulatory capital requirements both at the end of the previous financial year and after the proposed dividend payout.
Profitability Condition: Banks must have a positive adjusted Profit After Tax for the financial year for which dividends are proposed.
Restriction by Regulators: Banks must not be under any explicit restrictions imposed by the RBI or any other authority regarding dividend declaration or profit remittance.
Foreign Banks: Foreign banks operating in India in branch mode must have positive PAT to remit profits to their head offices.
Norms for Small Finance and Payment Banks: Small Finance Banks and Payment Banks can declare dividends up to 75% of PAT, subject to meeting regulatory conditions.
Higher Limit for RRBs and Local Area Banks: Regional Rural Banks and Local Area Banks may declare dividends up to 80% of PAT if they satisfy the prudential requirements.
Board Responsibility: Bank boards will ensure compliance with eligibility conditions, payout limits and reporting requirements before approving dividend payouts.
Restrictions on Profit Distribution: Certain categories of profits have been identified as ineligible for dividend distribution or profit remittance.