RBI Revises Bank Dividend Framework, new norms for FY27

Current Context: On March 10, 2026, RBI announced a revised dividend framework for banks, effective from FY27 (April 1, 2026 onwards).

• Dividend cap: Banks can distribute a maximum of 75% of adjusted profit after tax (PAT), ensuring retention of capital.
• Profit adjustment: Before dividend calculation, banks must deduct 50% of net NPAs from PAT, directly linking payouts to asset quality.
• Capital linkage: Dividend eligibility is now tied to Common Equity Tier‑1 (CET1) capital buffers, replacing earlier CRAR‑based thresholds.
• Scope: Norms apply to commercial banks, small finance banks, payment banks, local area banks, and regional rural banks, widening coverage.
• RBI oversight: The central bank retains discretionary powers to restrict dividends if prudential norms are breached or asset quality weakens.
• Significance: The framework balances shareholder returns with financial stability, encouraging strong banks to reward investors while ensuring weaker banks conserve capital.

Question:

Q.1 As stated in the RBI circular on dividend framework (10 March 2026), banks must deduct what portion of net NPAs from Profit After Tax before calculating dividends?
a) 25%
b) 40%
c) 55%
d) 50%

Answer: d) The circular mandates deduction of 50% of net NPAs from PAT, linking dividend distribution to asset quality performance