• Thu. Jul 25th, 2024

Dividend Curbs: Lenders with high non-performing assets face dividend curbs

Byusanewscart.com

Jan 2, 2024
Dividend Curbs: Lenders with high non-performing assets face dividend curbs

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MUMBAI: The RBI has proposed to restrict dividend payout by lenders with non-performing assets below 6%. In a bid to overhaul nearly two-decade old norms, the regulator has also proposed ceilings on dividend payout ratios, which range from 50% for zero net NPA ratio to 15% for a net NPA ratio above 4% but less than 6%.
RBI on Tuesday released a draft circular on ‘declaration of dividend by banks and remittance of profits to head office by foreign bank branches in India’.The existing guidelines on dividend distribution came into force in May 2005.
The move, aimed at protecting bank financials, is seen as a counter-cyclical prudential guideline as most banks have NPAs below this threshold. If banks with high NPAs are forced to plough back earnings, they will be in a better position to make provisions for the bad loans. When deciding on dividends or profit remittance, the board or bank management should consider NPAs, audit report qualifications, current/prospective capital positions, and the bank’s long-term growth plans, RBI said.



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