Bank of baroda

Restrictions on Payment of Dividends
Pursuant to the provisions of the Banking Regulation Act, a bank can pay dividends on its shares only after all its
capitalised expenses (including preliminary expenses, organization expenses, underwriting commission, brokerage,
amounts of losses and any other item of expenditure not represented by tangible assets) have been completely written
off. The Government of India may exempt banks from this provision by issuing a notification on the recommendation of the
RBI.
The GoI has granted an exemption to us by its Notification dated February 14, 2005 exempting us from the provisions of
sections 13 (payment of commission, brokerage, discounts) and 15(1) (payment of dividend) of the Banking Regulations
Act for a period of five years from the date of the said notification.
Further, as per RBI guidelines on payment of dividend, only those banks which comply with the following minimum
prudential requirements are eligible to declare dividend with the prior approval of the RBI:
Capital to risk asset ratio of at least 9% for the preceding two accounting years and for the accounting year for
which it proposes to declare dividend.
Net non-performing assets of less than 7%. In case any bank does not meet the above CRAR norm, but is having
a CRAR of at least 9% for the accounting year for which it proposes to declare a dividend, it would be eligible to
declare a dividend provided its net NPA ratio is less than 5%.
The dividend pay out ratio does not exceed 40%.
The proposed dividend is payable out of the current year’s profit.
The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free
of any qualifications by the statutory auditors, which have an adverse bearing on the profit during that year.
Compliance with restrictions as to payment of dividends and the setting up of a reserve fund as per Sections 15
and 17 of the Banking Regulation Act, 1949. By notification F.No.11/31/2004-BOA dated February 14, 2005, the GoI,
MoF has granted us an exemption from the provisions of sections 13 and 15(1) of the Banking Regulations Act for
a period of five years from the date of the Notification.
In the event that we fulfill the conditions stated above we can declare dividends without the consent of the RBI, but if we
do not comply with the conditions stated above but wish to declare dividend or a higher rate of dividend we would
require prior permission from the RBI.
RBI has also notified that banks may also declare and pay interim dividends out of the relevant account period’s profit
without the prior approval of the RBI if they satisfy the minimum criteria above, and the cumulative interim dividend is
within the prudential cap on dividend payout ratio (40%) computed for the relevant accounting period. Declaration and
payment of interim dividend beyond this limit would require the prior approval of the RBI.