The Reserve Bank of India has issued the Reserve Bank of India (Small Finance Banks – Prudential Norms on Declaration of Dividend) Directions, 2026, which will be effective from FY 2026–27, under the powers conferred by the Banking Regulation Act, 1949. The Directions prescribe prudential conditions for declaration of dividend by Small Finance Banks (SFBs), including compliance with regulatory capital requirements, positive Adjusted Profit After Tax (PAT), and absence of regulatory restrictions. Before approving dividends, the Board must consider factors such as RBI supervisory findings on NPA divergence, auditors’ report, capital adequacy position, and long-term growth plans. The framework introduces a Tier 1 capital ratio–based dividend payout structure, permitting dividend distribution within specified limits depending on the bank’s Tier 1 capital position, subject to an overall cap of 75% of PAT. The Directions also prohibit payment of dividend from extraordinary profits, overstated PAT identified by auditors, or unrealised gains from Level 3 financial instruments, and require reporting of dividend declarations to the RBI’s Department of Supervision within a fortnight, while allowing the RBI to restrict dividend distribution in case of regulatory non-compliance.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13328&Mode=0
