The Reserve Bank of India is proposing an overhaul of two-decade-old dividend payout rules for lenders, adding a flourish to a recent cleanup of bad debt. The rejig tightens on some fronts but ultimately gives the best performers the ability to better reward shareholders.
Under the proposal, a bank wishing to make payouts must first meet capital requirements for each of the past three years – similar to the current regime. Its net non-performing loans would, though, have to be less than 6% of total loans, compared with the current 7%. Those with zero bad debt would be able to pay out 50% of their earnings, up from 40%.
The timing is key. Indian lenders look healthy: net non-performing loans stood at 0.8% in September, a multi-year low. Yet the 2022-23 dividend payout ratio for the 10 largest Indian banks, including State Bank of India (SBI.NS) and HDFC Bank (HDBK.NS), averaged less than 19%, with the maximum about 28%, RBI data shows. The strongest lenders may soon be able to be a lot more generous and the new rules ought to prevent hubris from the rest. (By Una Galani)
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