The Reserve Bank of India (RBI) on March 10, 2026, issued the Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profits) Directions, 2026.
These Directions shall be applicable to all banking companies, corresponding new banks and State Bank of India as defined under subsections (c), (da) and (nc) of section 5 of the Banking Regulation Act,1949, and foreign banks operating as branch(es), excluding Small Finance Banks (SFBs), Local Area Banks (LABs), Payments Banks (PBs), and Regional Rural Banks (RRBs), hereinafter collectively referred to as 'banks' and individually as a 'bank'.
The Reserve Bank of India (RBI) has issued guidelines governing the declaration of dividends and remittance of profits by banks. The Board of Directors must carefully assess key factors before approving dividend payments, including divergence in NPA classification and provisioning observed during RBI supervision, the statutory auditors’ report (including modified opinions), the bank’s current and projected capital position relative to regulatory requirements, and its long-term growth plans.
To be eligible to declare dividends or remit profits, banks must meet certain prudential criteria. These include maintaining compliance with applicable regulatory capital requirements before and after dividend payment, having positive adjusted Profit After Tax (PAT), and ensuring there are no regulatory restrictions from the RBI or other authorities. Foreign banks operating in India through branch mode must also have positive PAT to remit profits to their Head Office.
The quantum of dividends for banks incorporated in India depends on their Common Equity Tier 1 (CET1) capital ratio, with higher capital ratios allowing a higher percentage of dividend payout from adjusted PAT. However, the total dividend payout cannot exceed 75% of the PAT for the relevant period. Foreign banks in branch mode may remit net profits to their Head Office without prior RBI approval, provided accounts are audited and any excess remittance is returned.
Certain profits are not eligible for dividend payment or profit remittance, including extraordinary income, overstated profits identified in audit reports, unrealised gains from fair valuation of Level-3 financial instruments, and specific gains related to loan transfers governed by RBI prudential norms. Banks must report dividend or profit remittance details to the RBI within two weeks, and the RBI retains the authority to restrict such payments if regulatory compliance is not met. Non-compliance with these directions may attract supervisory or enforcement action.
[Notification No. RBI/2025-26/387 DOR.ACC.REC.No.427/21.02.067/2025-26]
