RBI: Banks can pay upto 75% of profits as Dividend Payout

The Reserve Bank of India (RBI) has introduced new rules of prudential norms for banks. The central bank issued the Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profit) Directions, 2026, on March 10.

Under the new rules, most banks will be allowed to distribute a maximum of 75% of their Profit After Tax (PAT) as dividends. These rules will start from the financial year 2026-27 and replace the earlier guidelines issued in November 2025.

Before paying dividends, banks must meet some important conditions. They must follow all regulatory capital requirements, meaning they must have enough financial strength and reserves. Even after paying dividends, their capital must not fall below the required level set by the RBI.

Banks must also have a positive adjusted profit after tax in the year for which they want to give dividends. Similarly, foreign banks operating in India must have a positive profit if they want to send profits to their head office.

Another rule is that the bank should not be under any restriction from the RBI or other authorities that prevents it from paying dividends.

The same rules mostly apply to small finance banks and payment banks, which can also distribute up to 75% of their profits if they meet all regulatory requirements.

However, local area banks and regional rural banks (RRBs) are allowed a slightly higher limit. They can distribute up to 80% of their profit after tax, provided they also meet the same safety and regulatory conditions.

The RBI has also said that bank boards will be responsible for ensuring that these rules are followed when deciding dividend payments.

Additionally, some types of profits cannot be used for paying dividends, and banks must follow reporting rules. If banks fail to follow the guidelines, penalties may be imposed.

The Reserve Bank of India (RBI) has removed its earlier 2025 directions in the public interest. The old rules will no longer apply starting from the financial year 2026-27.

At the same time, the RBI has introduced new guidelines for different types of banks on how they can declare dividends. These new prudential norms will apply not only to commercial banks but also to payment banks, local area banks, regional rural banks, and small finance banks.

RBI has also made changes to the guidelines for foreign banks that operate in India through wholly owned subsidiaries. According to the amendment, these subsidiaries will now be allowed to declare dividends in the same way as domestic Indian banks.

All these new rules and amendments announced by the RBI will come into effect from the financial year 2026-27.