Reserve Bank of India
The Reserve Bank of India (RBI) proposed to set a limit on the 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, whereas for Regional Rural Banks and Local Area Banks this limit will be 80 percent. RBI 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, it is necessary for the net profit of the bank to be positive during the period for which the bank is proposing to give dividend.
rules for foreign banks
The same rule will be applicable for foreign banks opening branches in India. These banks can also remit profits to their headquarters only for periods with positive net profits. Foreign banks operating under branch system in India can remit dividends or surplus funds without prior permission of RBI. However, if audit finds excess amount remitted, the head office of that foreign bank will have to return the excess amount and make up the shortfall.
If any fortification is found
Even for local banks, deductions will be made for overstating profits. RBI said that if the net profit includes any extraordinary or special income, or if the audit report of the statutory auditor has a modified opinion that indicates overstatement of the profit, the same will be deducted from the net profit. 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 on this draft proposal from the public and banks till February 5.