RBI releases draft framework on dividend and remittance of profit
Mumbai, Jan 6, 2026
The RBI undertook a review of the existing prudential norms governing the declaration of dividends and remittance of profits, including those applicable to foreign banks operating in branch mode
Banks will be eligible to declare dividends or remit profits only if they meet specified prudential requirements, under the draft framework released by the Reserve Bank of India (RBI) on Tuesday.
The draft regulations suggest compliance with applicable regulatory capital norms at the end of the previous financial year and continued compliance in the year of payout, with capital levels remaining above regulatory thresholds even after dividend payment. Indian banks must report positive adjusted profit after tax (PAT) for the relevant period, while foreign banks operating in branch mode must have positive PAT to remit profits to their head offices. In addition, banks must not be subject to any explicit restrictions imposed by the RBI or any other authority.
The RBI undertook a review of the existing prudential norms governing the declaration of dividends and remittance of profits, including those applicable to foreign banks operating in branch mode in India. As part of this exercise, a draft of the revised framework was released for public comments on January 2, 2024. Following stakeholder feedback and consultations, the RBI has now issued draft Directions proposing a revised methodology for computing the maximum eligible dividend payout.
Foreign banks that meet the eligibility criteria may remit net profits earned from Indian operations without prior RBI approval, provided their accounts are audited. Any excess remittance must be promptly returned by the head office. For the purpose of calculating PAT, banks are required to exclude exceptional or extraordinary income and any overstated profits flagged by statutory auditors. Dividends or profit remittances cannot be funded from unrealised gains on fair valuation of Level 3 financial instruments, or from certain provision reversals and unrealised gains linked to loan transfers, in line with existing RBI directions.
The RBI has retained the right to restrict dividend distribution or profit remittance in cases of non-compliance, with no special dispensation available if eligibility conditions are not met. Non-compliance with these Directions may attract supervisory or enforcement action.
[The Business Standard]
