Declaration of dividends by banks - RBI - Reserve Bank of India
Declaration of dividends by banks
RBI/2004-05/451 May 04, 2005 All scheduled commercial banks (except RRBs) Dear Sir, Declaration of dividends by banks The policy approach adopted by the Reserve Bank with regard to payment of dividends by banks was reviewed in consultation with the Standing Technical Advisory Committee on Financial Regulation and the regulatory focus was shifted from the ‘quantum of dividend’ to the ‘dividend payout ratio’ in terms of our guidelines issued vide our circular DBOD. No. BC.80 / 21.02.67 / 2003-04 dated April 23, 2004. These guidelines permitted banks to declare dividends subject to a ceiling of 33.33% on the dividend payout ratio, without obtaining the prior approval of RBI, subject to the fulfilment of the laid down criteria. 2. On the basis of the experience gained, it has been decided to grant general permission to banks to declare dividends, subject to compliance with the guidelines laid down below: 3. Eligibility criteria for declaration of dividend Only those banks, which comply with the following minimum prudential requirements, would be eligible to declare dividends: i. The bank should have: In case any bank does not meet the above CRAR norm, but is having a CRAR of at least 9 % for the accounting year for which it proposes to declare dividend, it would be eligible to declare dividend provided its Net NPA ratio is less than 5%.
In case any bank does not meet the above eligibility criteria no special dispensation shall be available from the Reserve Bank. 4. Quantum of dividend payable Banks, which fulfil the eligibility criteria set out at paragraph 3 above, may declare and pay dividends, subject to the following:
The Reserve Bank will not entertain any application for a higher dividend payout ratio than the one for which the banks qualify. 5. Board Oversight A copy of these guidelines may be placed before the Board at its next meeting. Banks’ Boards should take into account the interests of all stake holders and the following aspects while deciding on the proposals for declaring dividend:
6. Reporting System All banks declaring dividends should report details of dividend declared during the accounting year as per the proforma furnished in Annex 2. The report should be furnished within a fortnight after declaration of dividends. 7. General The above guidelines will be applicable to the dividends declared for the accounting year ended March 31, 2005 onwards. In case any bank violates the above guidelines, the violation would be viewed very seriously and such violation would attract penal action under Section 46 of the Banking Regulation Act, 1949. 8. Please acknowledge receipt. Yours faithfully, (Anand Sinha) Matrix of Criteria for maximum permissible range of Dividend Payout Ratio
1. Banks should have a CRAR of at least 9% for preceding two completed years and the accounting year for which it proposes to declare dividend and Net NPA less than 7% to be eligible to declare dividends. In case any bank does not meet the above CRAR norm, but is having a CRAR of at least 9 % for the accounting year for which it proposes to declare dividend, it would be eligible to declare dividend provided its Net NPA ratio is less than 5%. 2. For 2004-05, if the Investment Fluctuation Reserve is less than 4 % of securities included in HFT & AFS categories, Dividend Payout Ratio will be computed with respect to the Adjusted Net Profit Adjusted Net Profit = Net Profit – [ {4% of (HFT+ AFS)} – IFR ] Illustrations
Reporting format for banks declaring dividend Details of dividend declared during the financial year beginning on April 1, 20__
Name of the Bank – _________
* quarter or half year or year ended ----- as the case may be
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