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RBI’s Most Recent Action: Stricter Guidelines for Lender Dividend Payments, Protecting Foreign Banks

<p>Recently, the Reserve Bank of India suggested permitting banks to issue dividends if their net non-performing assets (NPAs) percentage was less than 6%. In accordance with the current guidelines, which were last revised in 2005, banks must have an NNPA ratio of no more than 7% in order to be qualified to declare dividends.</p>
<p><img decoding=”async” class=”alignnone wp-image-338077″ src=”https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin-750×422.jpg” alt=”theindiaprint.com rbis most recent action stricter guidelines for lender dividend payments protectin” width=”1162″ height=”654″ title=”RBI's Most Recent Action: Stricter Guidelines for Lender Dividend Payments, Protecting Foreign Banks 3″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin-750×422.jpg 750w, https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin-1024×576.jpg 1024w, https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin-768×432.jpg 768w, https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin-390×220.jpg 390w, https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin-150×84.jpg 150w, https://www.theindiaprint.com/wp-content/uploads/2024/01/theindiaprint.com-rbis-most-recent-action-stricter-guidelines-for-lender-dividend-payments-protectin.jpg 1200w” sizes=”(max-width: 1162px) 100vw, 1162px” /></p>
<p>The draft establishes guidelines that the boards of banks must adhere to while deliberating on proposals for dividend payments. These guidelines include taking into account discrepancies in NPA classification and provisioning.</p>
<p>“The proposed dividend’s net NPA ratio for the fiscal year in question must not exceed six percent,” the Reserve Bank said in its draft criteria for dividend declarations.</p>
<p>According to the draft circular, a commercial bank must have a minimum overall capital adequacy of 11.5 percent to be able to declare a dividend. Small finance and payment banks must have a minimum capital adequacy of 15 percent, and local area and regional rural banks must have a minimum of 9 percent.</p>
<p>The RBI has proposed raising the upper ceiling on the dividend payout ratio, or the ratio between the amount of dividend payable in a year and the net profit, from the previous ceiling of 40% to 50% if the net NPA is zero. This is likely a departure from the current guidelines.</p>
<p>The Reserve Bank would not consider any requests for “ad-hoc dispensation on the declaration of dividend,” according to the proposal.</p>
<p>The revised plan also addresses international banks, which are exempt from RBI clearance when remitting earnings and dividends to their head offices as of 2003.</p>
<p>The RBI has suggested that international banks may transfer their net profit or excess (net of taxes) from their activities in India for up to a year or more, without first receiving permission from the central bank.</p>
<p>According to RBI, foreign lenders may continue to remit a portion of their revenues from operations in India without prior clearance as long as they comply with the new guidelines regarding bad loans and capital requirements as long as their accounts are audited.</p>
<p>The foreign bank’s main office is required by law to “immediately make good the shortfall” in the event that there is an excess remittance.</p>
<p>The proposal also stated that the foreign bank’s head office must “make good the shortfall” right away in the case of an excess remittance. By January 31, the public has time to provide feedback on the draft circular, according to the RBI.</p>
<p>The RBI said that the rules have been reevaluated in light of the introduction of differentiated banks, the reform of the prompt corrective action (PCA) framework, and the application of Basel III standards.</p>
<p>The RBI has requested views on the proposed regulations by January 31. The restrictions would take effect for dividend announcements from the financial year beginning April 2024 onwards, the statement said.</p>

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