Mumbai, Jan. 16 -- The Reserve Bank of India's (RBI's) move to allow banks to distribute up to 75% of their net profit as dividends, up from 45% earlier, marks a shift in how regulators balance capital conservation with shareholder returns by tying payouts more closely to a bank's core equity. And, for the government, the majority owner of public sector banks (PSBs), this could mean a larger share of the sector's recent profit boom flowing back into the exchequer.

In its latest draft circular last week, RBI suggested revising the dividend distribution framework for banks, linking eligibility more closely to core equity strength rather than overall capital ratios. The proposals are open for stakeholders' feedback until 5 February.

The ne...