The Reserve Bank of India (RBI) on November 28, 2025, issued the Reserve Bank of India (Small Finance Banks – Prudential Norms on Declaration of Dividends) Directions, 2025 for public comments. The lays down a uniform prudential framework governing the declaration of dividends by Small Finance Banks (SFBs), ensuring capital adequacy, asset quality, and financial soundness are maintained before profit distribution. It emphasizes the need for sound Board oversight and mandates that dividend decisions must factor in RBI’s supervisory findings, auditor qualifications, provisioning adequacy, and the bank’s long-term capital and growth plans.
Under the proposed norms, only SFBs meeting specified prudential criteria will be eligible to declare dividends. The key conditions include maintaining a minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9% for the preceding two years and the current year, and a Net Non-Performing Assets (NNPA) ratio below 7% in the year of declaration. In limited cases, where CRAR meets the threshold in the current year but not the preceding two, dividends may still be declared if NNPA is below 5%. Dividends must be paid solely out of current-year profits, and only if no regulatory restrictions or adverse supervisory actions exist against the bank.
The also caps the dividend payout ratio at a maximum of 40%, linked to the bank’s CRAR and NNPA levels through a graded matrix. Extraordinary income is to be excluded while calculating payout ratios and auditor qualifications adversely affecting profits must be adjusted before determining dividend eligibility. SFBs are required to report dividend declarations to the RBI within a fortnight using the prescribed format in Annex I. The framework seeks to balance shareholder returns with the stability and prudence essential to the small finance banking sector.
These Directions shall come into force with immediate effect.
[Notification No. RBI/DOR/2025-26/199 DOR.ACC.REC.118/ 21-02-067/2025-26]
