The Reserve Bank of India (RBI) on March 10, 2026, Reserve Bank of India (Payments Banks – Prudential Norms on Declaration of Dividend) Directions, 2026.
The following has been stated:
• The Directions prescribe a prudential framework for declaration of dividends by Local Area Banks (LABs) effective from FY 2026–27. A LAB can declare dividends only if it complies with regulatory capital requirements, has positive Adjusted Profit After Tax (PAT), and is not under any regulatory restriction from the RBI.
• The maximum dividend payout is linked to the bank’s Capital to Risk Weighted Assets Ratio (CRAR) through a graded structure; banks with higher capital ratios can distribute a larger share of profits, subject to an overall ceiling of 80% of PAT.
• The Board of Directors shall assess factors such as NPA divergence, auditor observations, capital position, and long-term growth plans before declaring dividends, and banks must report dividend declarations to the RBI within two weeks.
• RBI also retains the power to restrict dividend distribution if a bank is non-compliant, and any violation of the Directions may attract supervisory or enforcement action.
[Notification no. - RBI/2025-26/388 DOR.ACC.REC.No.429/21.02.067/2025-26]
