The Reserve Bank of India (RBI) has put forward a proposal to cap the dividend payouts of scheduled commercial banks at 75 % of their net profit after tax (PAT). The move is aimed at encouraging banks to retain a larger portion of earnings to bolster capital buffers, support credit growth, and sustain financial stability.

Key Highlights

• RBI proposed capping banks’ dividend payouts at 75 percent of profits to strengthen capital buffers.
• The move aims to support long-term stability and ensure banks retain earnings amid strong credit growth.

Under the proposed guideline, lenders would still have the flexibility to reward shareholders, but within a defined framework that balances investor returns with prudent capital management. The central bank’s suggestion comes at a time when Indian banks are witnessing robust credit demand, making the retention of profits for internal capital generation more critical.

The regulators believe that by limiting dividend payouts, banks can better absorb unexpected losses and strengthen their resilience against economic shocks. This measure aligns with Basel III capital adequacy norms and global supervisory practices that emphasise strong capital retention during periods of growth.

The RBI has invited feedback from banks and industry stakeholders on the draft proposal, which will be reviewed before finalisation. If implemented, this cap could influence how lenders plan capital allocation, impacting shareholders, investors, and long-term strategic goals of banking institutions.

Also Read: Credit Growth Surges Ahead of Deposits for India's Large Banks

Market analysts say that while shareholders might see moderated dividend flows, the move could enhance the overall health of the banking system by ensuring higher retained earnings, supporting asset quality, and maintaining adequate capital ratios.

The proposal underscores the RBI’s continued focus on prudent risk management and sustainable growth in India’s banking sector, reinforcing the importance of balanced capital distribution strategies.