RBI proposes banks with less than 6% net NPAs to declare dividends
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The Reserve Bank of India (RBI) in the draft guidelines on dividend declaration has proposed allowing banks having net non-performing assets (NPAs) ratio of less than 6 per cent to declare dividends. As per the prevailing norms last updated in 2005, banks need to have a NNPA ratio of up to 7 per cent to become eligible for declaration of dividends.
It said the guidelines have been reviewed in the light of implementation of Basel III standards, the revision of the prompt corrective action (PCA) framework, and the introduction of differentiated banks. The central bank has proposed that the new guidelines should come into effect from FY25 onwards.
The draft lays down directions need to be followed by banks’ boards while considering proposals of dividend payouts, which include consideration on divergence in classification and provisioning for NPAs as well. Further, it stated a commercial bank should have a minimum total capital adequacy of 11.5 per cent to be eligible for declaring dividend, while the same for a small finance bank and payment banks has been set at 15 per cent, and 9 per cent for local area banks and regional rural banks.
