RBI introduces new rules for banks: They can only pay this much dividend to shareholders; check the limit..

The quarterly earnings season has begun. Companies often announce dividend payouts along with their quarterly results. The Reserve Bank of India (RBI) defines a dividend as an amount payable on equity shares, and this includes interim dividends. However, the RBI has now proposed capping the dividend amount for banks.

What is the proposed limit?
The RBI's definition of a dividend does not include dividends paid on perpetual non-cumulative preferred shares. The Reserve Bank of India (RBI) on Tuesday proposed a limit on dividends paid by banks to their shareholders, under which no bank will be able to pay more than 75 percent of its net profit as dividends.

Which banks will this rule apply to?
The RBI's new rule will apply to all Indian banks, while the limit will be 80 percent for Regional Rural Banks and Local Area Banks. The RBI stated in the draft that before declaring a dividend, the bank's board of directors must consider the long-term growth plans and capital position.

Net profit must be positive.
According to the new rules, the bank's net profit must be positive for the period for which it is proposing to pay a dividend. The same rule will apply to foreign banks operating branches in India.

The RBI also stated that it reserves the right to restrict dividend distribution or profit repatriation if a bank fails to comply with laws, rules, or guidelines. The Reserve Bank has sought suggestions from the public and banks on this draft proposal until February 5th.

Impact on bank shares
This news could impact bank shares. The stock market may see a weak opening today (Wednesday) as GIFT Nifty is showing a decline.

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