Never knew that Bank dividend is also goverened by RBI rules. I thought it was upto the Bank to declare and payout dividends. This article says there are RBI rules for dividends. After reading the article, few points being
The RBI guideline states that the maximum allowable payout is now 100% of adjusted PAT, subject to cap at 75% of reported PAT. Not sure what was earlier. Was it 75%
Capital adequacy should be above the minimum - This is understandable. Banks cannot payout when this ratio is breached.
Dividends cannot be paid from unrealised gains or extraordinary income.
I was checking the dividend yield of banks - as per Trendlyne PSU have the highest dividend yield - Bank of Maharashtra of 3.04.
I understand the logic behind it as to safeguard the Banks, so does investor need to keep this point that there are restrictions and not to solely depend on dividend yield. So a Bank with accumulated profits/retained earnings cannot be given out to Shareholders even if the bank does not need it for growth.
No wonder Vendanta Group is not into Banks. (just being sarcastic)
Every aspect of banks in india, including but not limited to, who can start a bank, who can be CEO and sit on board, what they can do with their money, what they cannot do with their money, how much shares an entity can own in bank, are controlled by RBI.
And this is nothing new, has been going on forever.
Oh, vedanta (and every major corporate group) would love to own a bank. RBI would never allow them to have one
…and so will a bunch of lucky 10,000 reading this thread today and in future.
BTW, the above regulation update around bank dividends,
looks like one more step to incentivise banks to improve ther operations,
by rewarding better administration with higher flexibility.
In a similar vein, recently a bank’s cost of insuring (via DICGC)
has been linked to the quality of their operations.
