To preserve capital and remain resilient in the face of the Covid-19 crisis, the Reserve Bank of India (RBI) has asked banks to limit dividend payouts for FY21 to 50%. The Reserve Bank of India had issued uniform dividend declaration norms on May 4, 2004. In the financial year 2020-21, the Reserve Bank of India limited banks' ability to pay dividends, citing the ongoing second wave of coronavirus, which has an economic cost.
"Banks may pay a dividend on equity shares from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than fifty percent of the amount determined as per the dividend payout ratio prescribed," the RBI said in a notification.
A bank's capital adequacy ratio, a capital preservation metric, should be at least 9% for the previous two fiscal years and the accounting year in which it intends to declare dividends. The dividend payout ratio must not exceed 40% and must follow a prescribed matrix.
Banks that pay dividends on equity shares from profits for the fiscal year ending March 31, 2021, provided that the dividend amount is not more than half of the amount calculated using the dividend payout ratio.
Cooperative banks, on the other hand, would be able to pay dividends on equity shares from the previous year's earnings.
Banks were not allowed to pay any dividends in 2019-20, according to the RBI. In April of last year, it prohibited banks from revealing any such incentives in the event of a pandemic outbreak.
Having followed the payment of dividends, all banks must continue to meet the applicable minimum regulatory capital requirements. When declaring a dividend on equity securities, the Board of Directors must weigh the bank's current and expected capital position in relation to relevant capital requirements, as well as the adequacy of provisions, taking into account the economic climate and profitability forecast.