RBI allows commercial lenders to pay up to 50% of pre-COVID dividends

RBI has recently relaxed the dividend payout norms of commercial banks and allowed them to pay up to 50% of what they paid before COVID-19 from the profits for the fiscal ended on March 31, 2021. For FY20, the RBI had asked banks not to make any dividend payment on equity shares from the profits in view of the ongoing stress and heightened uncertainty on account of COVID-19.

RBI stated, “In partial modification of the instructions, banks may pay dividend on equity shares from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than 50% of the amount determined as per the dividend payout ratio prescribed in paragraph 4 of the May 4, 2005 circular. Other instructions in the circular shall remain unchanged.”

RBI also said that cooperative banks are permitted to pay dividend on equity shares from the profits of the financial year ended March 31, 2021, as per the extant instructions. However, all banks must continue to meet the applicable minimum regulatory capital requirements after dividend payment.