Bank dividend payout could surge as RBI moots raising cap to 75%

NEW CET1-LINKED FORMULA EXPANDS HEADROOM TO SHELL OUT MORE

- MAHESH NAYAK

THE 31 STATE-RUN and private banks may soon be able to hand over 131% higher dividends to shareholders, following the Reserve Bank of India’s (RBI) newly-proposed framework on dividend distribution for commercial banks.

An assessment of FY25 financials for these listed banks shows that while they collectively paid about ₹64,300 crore in dividends last year, the draft norms would allow payouts of nearly ₹1,48,600 crore, thanks to a more formula-based, capital-sensitive approach to determining limits.

State-run banks could distribute 37% higher dividends, rising to ₹47,997 crore from the ₹34,998 crore paid in FY25. Private sector banks would see a sharper jump, becoming eligible to pay up to ₹1 lakh crore, compared with the ₹29,258 crore they actually distributed.

The RBI’s Commercial Banks, Prudential Norms on Declaration of Dividend and Remittance of Profits Directions, 2026 introduces a transparent, quantitative system that replaces the earlier discretionary approach. Dividend eligibility will now be tied to two key parameters: The bank’s common equity tier I (CET1) capital ratio and its adjusted profit after tax (PAT).

Sanjay Agarwal, senior director, CareEdge Ratings, said: “The RBI’s approach reflects a balance between supporting the government’s fiscal needs and preserving the central bank’s financial resilience.”