Indian The Reserve Bank (RBI) on Tuesday proposed to fix the limit of dividend given by banks to shareholders. Under this, no bank will be able to give dividend more than 75 percent of its net profit. The Reserve Bank defines ‘dividend’ as the amount payable on equity shares and includes interim dividend. But dividends paid on perpetual non-cumulative preference shares are not included. The proposed rule will be applicable to all Indian banks, while for Regional Rural Banks and Local Area Banks this limit will be 80 percent.
Special attention will have to be paid to long term growth plan and capital position.
The Reserve Bank of India said in this draft that before giving dividend, the board of directors of the bank will have to keep in mind the long term growth plan and capital position. Apart from this, the net profit of the bank must be positive during the period for which the bank is proposing to give dividend. RBI has made it clear in its proposal that the same rule will be applicable for foreign banks opening branches in India, that is, foreign banks will also not give more than 75 percent of the net profit as dividend to their shareholders. These banks can remit profits to their headquarters only for periods of positive net profit.
RBI will take action against banks that do not follow rules
Along with this, RBI has said that if any bank does not follow the laws, rules or guidelines, then it will reserve the right to impose restrictions on dividend distribution or remittance of profits. The Reserve Bank has sought suggestions from the public and banks on this draft proposal till February 5. Let us tell you that all the banks listed in the Indian stock market will start releasing the results of the third quarter of the current financial year in a few days and along with this they will also declare dividend for their shareholders.
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