RBI Proposes Dividend Cap at 75% of Bank Profits, Holds First Payments Regulatory Board Meeting

The Reserve Bank of India (RBI) has proposed new restrictions for banks that will restrict dividend payments to 75% of net earnings.

RBI Proposes Dividend Restrictions for Banks

The word “dividend” does not include payments on Perpetual Non-Cumulative Preference Shares (PNCPS), but it does relate to payments on equity shares, including interim dividends. “Reserve Bank of India Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profits Directions, 2026” is the title of the draft guidelines published by the RBI.

The proposal states that before making decisions on dividend declarations or profit transfers, the Board of Directors must assess long-term development goals and the bank’s capital status. Banks must also demonstrate a positive adjusted profit after tax (PAT) for the relevant period. In order to send earnings to their headquarters, foreign banks that have branches in India must also demonstrate a positive PAT.

Dividend Limits and PAT Guidelines

Indian-incorporated banks are permitted to issue dividends up to the specified amounts, however they cannot exceed 75% of the PAT for the relevant period. The RBI has until February 5 to receive comments on this draft. If a bank is determined to be in violation of laws, rules, and regulations, the central bank still has the power to prohibit dividend distribution or profit remittance.

The RBI has suggested a higher threshold of 80% of PAT for local area banks and regional rural banks. This change recognizes the particular operating difficulties these smaller banks encounter. The plan seeks to strike a balance between preserving enough capital reserves for future expansion and stability and maximizing shareholder profits.

RBI Policy Objective

The goal of the RBI’s policy is to reward shareholders while ensuring that banks retain a strong financial position. By imposing these limits, the RBI hopes to encourage banks to manage their finances sensibly so that they can withstand future economic downturns.

This action is a component of the RBI’s larger initiatives to improve the soundness of the financial industry. The RBI seeks to avoid excessive profit distribution that would jeopardize a bank’s capital sufficiency by controlling dividend distributions.

RBI Convenes Payments Regulatory Board’s First Meeting

Under Governor Sanjay Malhotra, the Reserve Bank of India convened the Payments Regulatory Board’s first meeting in Mumbai. The Board, which was established under the modified Payment and Settlement Systems Act, 2007, examined the results of the Digital Payments Survey, the Payments Vi.

The inaugural meeting of a recently established oversight committee is a significant regulatory milestone for India’s digital payments industry. Strong and impartial regulation is now crucial as digital transactions spread quickly across the nation. In order to direct, oversee, and improve payment and settlement systems in accordance with international norms, the Reserve Bank of India has recently operationalized a special board.

Purpose of the Payments Regulatory Board (PRB)

Why is it in the news?

In Mumbai, the Reserve Bank of India hosted the Payments Regulatory Board’s (PRB) first meeting. RBI Governor Sanjay Malhotra presided over the meeting.

The Payments Regulatory Board (PRB): What is it?

After the Payment and Settlement Systems Act of 2007 was amended, the Payments Regulatory Board was established as a legislative authority, which becomes operative on May 9, 2025. The PRB was established to offer targeted monitoring and regulation of India’s payment systems, which is preserving financial stability while guaranteeing innovation, efficiency, and safety in digital payments.

Digital Payments Survey and Strategic Direction

The PRB examined how the RBI’s Department of Payment and Settlement Systems operated at its first meeting. In light of India’s expanding involvement in international digital payments, the Board looked at current emphasis areas including both local and international payment systems. In order to guarantee a safe, inclusive, and robust payment system, members spoke on regulatory objectives.

Digital Payments Survey and Payments Vision 2028: The RBI unveiled the draft Payments Vision 2028, which outlines a plan for how India’s payment environment would grow going forward. The Board offered strategic direction to promote worldwide interoperability, innovation, and consumer safety. Key results from the RBI’s Survey on Digital Payments were also presented, including information on user uptake, obstacles, and new developments in digital transactions.

Institutional Representation and Participants: Senior RBI officials as well as the secretary of the Department of Financial Services and the secretary of the Ministry of Electronics and Information Technology attended the meeting. Their existence demonstrates how the government and central bank work together to shape India’s digital financial system.

Significance of Payment System Regulation

With systems like UPI at the forefront, India has one of the fastest-growing digital payment marketplaces in the world. To mitigate risks including cyber attacks, systemic breakdowns, and consumer protection problems, strong regulation is essential. The PRB’s establishment guarantees specialized and open payment system governance, fostering long-term development and confidence.