CURRENT AFFAIRS : BANKING & FINANCE
Reserve Bank of India plans to tighten dividend declaration criteria for banks
- The Reserve Bank of India (RBI) has proposed new rules of dividend payout for domestic and overseas banks operating in India.
- The proposed rules for dividend payout by banks will be effective from the fiscal year 2024-25 onwards.
- The RBI has invited public feedback on the proposed rules, and the deadline for submission is 31 January 2024.
Key Highlights :
- Dividend Declaration Criteria : Banks with an NNPA (Net Non-Performing Asset) ratio exceeding 6% and a Capital Adequacy Ratio (CAR) below 11.5% are prohibited from declaring dividends.
- Minimum Capital Adequacy Ratio : Minimum capital adequacy ratio has been kept at 15% for a small finance bank and payment banks.
- It has been kept at 9% for local area banks and regional rural banks.
- Dividend Computation Basis : According to the RBI’s circular, banks must compute dividends on the basis of the “dividend payout ratio”.
- Dividend payout ratio is the ratio between the amount of the dividend payable in a year and the net profit for the financial year for which the dividend is proposed.
- Inclusion in Dividend Payable : Only dividend on equity shares shall be included in the proposed dividend payable.
- Upper Ceiling on Dividend Payout Ratio : The RBI has proposed increasing the upper ceiling on dividend payout ratio, which is the ratio between the amount of the dividend payable in a year and the net profit to 50 per cent if the net NPA is zero from the earlier ceiling of 40 per cent.
- NNPA Requirement for Dividend Eligibility : Presently, banks require an NNPA ratio of up to 7% to become eligible for declaration of dividends.
- Review Basis : The guidelines have been reviewed in the light of implementation of Basel III standards, the revision of the prompt corrective action (PCA) framework, and the introduction of differentiated banks.
- Applicability : This circular is applicable to all commercial banks (including Regional Rural Banks, Local Area Banks, Small Finance Banks, and Payments Banks).
About RBI :
- Established : 1 April 1935
- Headquarters : Mumbai, Maharashtra, India
- Governor : Shaktikanta Das
- Deputy Governors : Swaminathan Janakiraman, Michael Patra, M. Rajeshwar Rao, T Rabi Sankar
India’s FY24 GDP Growth Expected to Surpass Earlier Projection of 6.5% – Finance Ministry
- According to the Finance Ministry, India’s FY24 Gross Domestic Product (GDP) growth rate is expected to exceed its earlier forecast of 6.5%.
- The GDP growth rate is expected to comfortably exceed the Finance Ministry’s earlier forecast after Q2 GDP growth performance at 7.6%.
Key Highlights :
- India’s GDP already grew 7.7% in the first half of this fiscal.
- Union Budget 2023-24 had mentioned a nominal GDP of 10.5% for current fiscal.
- In the latest half-yearly economic review report, the Finance Ministry has highlighted that the headline inflation outlook is on a declining trend.
- India had recorded an economic growth of 7.2% in 2022-23 and 9.1% in 2021-22.
- RBI has raised its growth forecast for 2023-24 to 7%.
- RBI has projected inflation to average at 5.4% in FY24.
- The International Monetary Fund (IMF) has kept India’s growth rate at 6.3% for 2023 and 2024.
- At present, the IMF expects India to become a $5-trillion economy by 2028.
- S&P Global Ratings expects India to become the 3rd largest economy by 2030.
- According to S&P Global Ratings, India will be the world’s fastest growing economy for the next 3 years.
- According to JP Morgan, India is expected to become the world’s 3rd largest economy by 2027.
- It expects the Indian economy to hit $7 trillion by 2030.
