Module: | Capital Adequacy, Basel Norms & Monetary Policy
Q10: Consider the following statements regarding the regulatory ceilings and compliance mandates for the declaration of dividends by banks:
1. Commercial Banks, Small Finance Banks, and Payments Banks are subject to a strict maximum dividend payout ceiling of 75% of their Adjusted Profit After Tax.
2. Regional Rural Banks and Local Area Banks are granted an elevated maximum dividend payout cap of exactly 80% of their Adjusted Profit After Tax.
3. Banks are required to report the details of the declared dividend to the RBI's Department of Supervision within a strict 14-day timeline following the declaration.
4. A bank is permitted to declare a restricted, limited dividend even if it is currently operating under the Prompt Corrective Action framework, provided it obtains prior RBI approval.
Which of the statements given above is/are correct?
2. Regional Rural Banks and Local Area Banks are granted an elevated maximum dividend payout cap of exactly 80% of their Adjusted Profit After Tax.
3. Banks are required to report the details of the declared dividend to the RBI's Department of Supervision within a strict 14-day timeline following the declaration.
4. A bank is permitted to declare a restricted, limited dividend even if it is currently operating under the Prompt Corrective Action framework, provided it obtains prior RBI approval.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is Correct: The RBI enforces a strict maximum dividend payout cap of 75% of the Adjusted PAT.
This ceiling applies universally across Commercial Banks, Small Finance Banks (SFBs), and Payments Banks (PBs). Statement 2 is Correct: As a specific carve-out in the regulations, Regional Rural Banks (RRBs) and Local Area Banks (LABs) are allowed a slightly higher maximum dividend payout ceiling, capped at 80% of their Adjusted PAT.
Statement 3 is Correct: The regulatory compliance timeline mandates that all banks must report their dividend declarations to the RBI's Department of Supervision within a fortnight (14 days) of the action.
Statement 4 is Incorrect: There is an absolute regulatory override regarding PCA.
Banks are strictly prohibited from declaring any dividend if they are under the Prompt Corrective Action (PCA) framework or under any other specific restriction from the RBI or other regulatory authorities regarding dividend declaration.
This ceiling applies universally across Commercial Banks, Small Finance Banks (SFBs), and Payments Banks (PBs). Statement 2 is Correct: As a specific carve-out in the regulations, Regional Rural Banks (RRBs) and Local Area Banks (LABs) are allowed a slightly higher maximum dividend payout ceiling, capped at 80% of their Adjusted PAT.
Statement 3 is Correct: The regulatory compliance timeline mandates that all banks must report their dividend declarations to the RBI's Department of Supervision within a fortnight (14 days) of the action.
Statement 4 is Incorrect: There is an absolute regulatory override regarding PCA.
Banks are strictly prohibited from declaring any dividend if they are under the Prompt Corrective Action (PCA) framework or under any other specific restriction from the RBI or other regulatory authorities regarding dividend declaration.