RBI Direction Report – 10th March 2026 | Prudential Norms on Declaration of Dividend and Remittance of Profit

Revised RBI Prudential Norms on Declaration of Dividend & Remittance of Profits (2026)

Based on the RBI Press Release (March 10, 2026) and the issuance of five Master Directions and one Amendment Guideline. The extant norms remain valid till FY 2025-26, with the revised frameworks taking effect from Financial Year (FY) 2026-27.

Executive Summary

The Reserve Bank of India has overhauled the dividend declaration and profit remittance framework for regulated entities. The cornerstone of the new policy allows eligible banks to distribute up to 75% of their Profit After Tax (PAT) as dividends (an increase from the previous caps), provided they stringently meet applicable regulatory capital requirements post-distribution. Furthermore, stringent limits are imposed on foreign bank branches regarding profit remittance based on positive PAT.

1. Commercial Banks

Applicable Entity: Scheduled Commercial Banks (SCBs) & Foreign Banks (Branch Mode)

• 75% PAT Cap: The maximum permissible dividend payout ratio is capped at 75% of the adjusted Profit After Tax (PAT) for the proposed financial year.
• Post-Dividend Capital Buffer: Banks must ensure that their regulatory capital (specifically CET1) does not fall below the applicable minimum requirements after the dividend payout.
• Foreign Branch Remittance: Foreign banks operating via branches in India must report a positive PAT for the relevant accounting period before remitting any profits to their Head Offices.
• Exclusions: Exceptional/extraordinary income and unrealized valuation gains must be excluded from the PAT calculation for dividend eligibility.

• Revamp Dividend Distribution Policy: Board of Directors must update the internal dividend policy to align with the 75% cap and the new adjusted PAT methodology before FY 2026-27.
• Capital Adequacy Stress Testing: Institute a mandatory pre-declaration stress test to certify that Capital to Risk-Weighted Assets Ratio (CRAR) and CET1 remain safely above regulatory minimums post-payout.
• Foreign Bank Alignment: Management of foreign branches must align accounting audits to explicitly certify positive PAT strictly from Indian operations prior to initiating Head Office remittances.

2. Small Finance Banks

Applicable Entity: Small Finance Banks (SFBs)

• Alignment with commercial bank frameworks, setting the maximum dividend payout ceiling to 75% of PAT.
• Strict adherence to maintaining the required 15% CRAR (specific to SFBs) even after the proposed dividend payout is accounted for.
• Net Non-Performing Assets (NNPA) must be within prescribed thresholds (typically below 6%) for the year of declaration.

• Asset Quality Review: Prioritize aggressive recovery and provisioning to keep NNPA well below regulatory limits to qualify for optimal dividend payouts.
• Core Capital Augmentation: Since SFBs are growth-focused, management must balance the allure of high dividend payouts with the need to retain earnings to support loan book expansion.
• Board Certification: Create a standard reporting format for the Board to formally certify capital adequacy post-dividend distribution.

3. Payment Banks

Applicable Entity: Payment Banks (PBs)

• Payment banks must have a positive adjusted PAT for the financial year.
• Capital adequacy (15% minimum CRAR for PBs) must remain uncompromised post-dividend.
• Dividends cannot be declared if there are explicit operational or regulatory restrictions placed on the PB by the RBI.

• Investment Portfolio Review: Since PBs primarily invest in G-Secs, management must ensure no unrealized valuation losses are artificially inflating PAT before dividend computation.
• Regulatory Compliance Audit: Conduct a comprehensive pre-audit to ensure zero active RBI restrictions or penalties exist before proposing a dividend to shareholders.

4. Local Area Banks

Applicable Entity: Local Area Banks (LABs)

• Introduction of the maximum 75% dividend payout threshold against adjusted net profits.
• Mandatory requirement to meet both current-year and previous-year regulatory capital norms.
• Prohibition of dividend payments from accumulated reserves of previous years.

• Profit Retention Strategy: Given the geographical concentration risk of LABs, management should adopt a conservative approach, potentially maintaining payouts well below the 75% cap to build local resilience buffers.
• Current Year Profit Mapping: Update accounting software to strictly restrict dividend simulations to current year adjusted PAT, completely isolating historical reserve pools.

5. Regional Rural Banks

Applicable Entity: Regional Rural Banks (RRBs)

• Standardization of dividend payout metrics aligned with commercial standards.
• Explicit consideration of supervisory findings regarding NPA divergence by the Reserve Bank or NABARD before dividend computation.
• Compliance with minimum CRAR (9%) post-dividend payout.

• Sponsor Bank Consultation: Establish a direct consultation protocol with the sponsor bank to evaluate capital adequacy and finalize dividend proposals.
• NABARD Audit Rectification: Form a dedicated task force to address and close any NPA divergence observations raised by NABARD before the end of FY 2026-27 to ensure dividend eligibility.

6. (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Amendment Guidelines, 2026

Applicable Entity: Foreign Banks (WOS Mode)

• Integration of the new dividend declaration norms into the operational framework of Foreign Bank Wholly Owned Subsidiaries (WOS) in India.
• Treating WOS identically to domestic commercial banks for dividend caps (max 75%) and adjusted PAT requirements.

• Policy Integration: Update the corporate governance framework of the WOS to reflect domestic dividend policies rather than global parent company dividend models.
• Local Capital Planning: CFOs must project local capital requirements in India independent of the parent bank’s global capital buffers before distributing dividends.