The Reserve Bank of India (RBI) has taken a significant step towards revising the regulatory landscape for banks by releasing a comprehensive draft framework. The central bank is now actively seeking public comments on its proposed "Reserve Bank of India (Prudential Norms on Dividend and Remittance of Profit) Directions, 2026." This move aims to establish a revised and robust system governing how banks declare dividends and send profits abroad.
What the New Draft Framework Proposes
This initiative follows a thorough review of the existing guidelines, particularly those affecting foreign banks operating through branches in India. The RBI had initially floated a draft for feedback on January 2, 2024. Incorporating the responses and consultations from that round, the regulator has now crafted a fresh set of draft Directions featuring a new methodology for calculating the maximum eligible dividend payout.
The draft framework is extensive and categorizes norms for different types of banks. It consists of five separate sets of Directions covering:
- Commercial Banks
- Small Finance Banks
- Payment Banks
- Regional Rural Banks
- Local Area Banks
Each set is tailored for the specific segment, ensuring that the prudential norms are appropriately applied across India's diverse banking structure.
Key Eligibility Criteria for Banks
Under the proposed rules for commercial banks, a bank will only be permitted to declare dividends or remit profits if it satisfies strict prudential conditions. The core requirements include:
Capital Compliance: The bank must have met all applicable regulatory capital requirements at the close of the previous financial year. Furthermore, it must continue to comply with these requirements throughout the year in which the dividend is planned. Crucially, the bank's regulatory capital must not dip below the prescribed minimum level even after the dividend amount is paid out.
Profitability Threshold: For banks incorporated in India, there is a mandate for a positive adjusted Profit After Tax (PAT) for the period related to the proposed dividend. For foreign banks operating in branch mode, they must show a positive PAT for the period for which they intend to remit profits overseas.
Conditions for Other Bank Categories
Similar prudential safeguards have been outlined for Small Finance Banks, Payment Banks, Regional Rural Banks, and Local Area Banks. These entities must also:
- Adhere to regulatory capital requirements both before and after the dividend payment.
- Report a positive adjusted PAT for the relevant financial year.
- Not be under any explicit restriction from the RBI or any other authority that prohibits dividend declaration.
These measures are designed to ensure that banks maintain a strong capital base and are financially healthy before distributing profits to shareholders or parent entities.
Next Steps and Stakeholder Participation
The RBI has officially opened the window for public consultation on these draft Directions. All stakeholders, including banks, financial institutions, experts, and the general public, are encouraged to review the proposals and share their feedback.
The deadline for submitting comments is February 5, 2026. Interested parties can easily provide their inputs through the dedicated 'Connect2Regulate' section available on the official RBI website. This participatory approach underscores the central bank's commitment to formulating balanced and effective regulations through inclusive dialogue.
