(Commonwealth_India) Last year, shareholders of India’s big banks were in a celebratory mood. The dividend cheques were larger, bank profits were robust, and there was a belief that the positive trend would persist. In fact, payouts climbed more than 15 per cent in FY25, marking one of the most generous years in recent memory. But as the calendar turns to FY26, the mood may shift from abundance to caution.
A new analysis by S&P Global Market Intelligence suggests that the 12 largest banks in the country will hand out a little less this year—about $5.98 billion in total dividends, down 4.2 per cent from the $6.24 billion distributed the year before. That might not sound like a dramatic fall, but for investors who’ve grown used to fatter cheques, even a small dip is noticeable.
What is the reason for this change? The reason for this change lies in the way banks generate revenue and the changes in the financial landscape. A big chunk of their profits come from what’s called the “net interest margin,” essentially the difference between what they earn on loans and what they pay out on deposits. Both sides have been exerting pressure on this margin recently. The Reserve Bank’s rate cuts have meant banks are earning less on new loans, while savers, who have plenty of options, are demanding better rates on deposits. To stay competitive, banks are offering higher deposit rates, which pushes their costs up. Put simply, they’re earning less while paying out more, leaving a smaller pot of profit to pass on as dividends.
The effect is showing up in the payouts of some of the country’s most trusted names. HDFC Bank, for instance, may reduce its dividend per share from ₹11 to ₹8.25, a cut that many investors will feel keenly, since the bank has built a reputation for consistency. Bank of Baroda too may trim its payout slightly, from ₹8.35 to ₹7.90. These cuts matter because it’s the first time in at least four years that such established banks are scaling back. At the same time, it’s not all gloom: State Bank of India is expected to hold steady at around ₹16, and ICICI Bank may even lift its dividend to ₹12, showing that the story isn’t uniform across the sector.
Beyond the numbers, there’s a bigger narrative about caution. The pace of credit growth, how quickly banks can lend and expand their lending portfolios, has slowed. Businesses and households are not borrowing as much, and regulators are closely monitoring unsecured lending, encouraging banks to exercise caution. The broader economy is stable but lacks the energy of a boom, making lenders wary of overextending themselves.
For investors, the current situation may mean slightly slimmer cheques this year. But step back, and the picture looks more like prudence than weakness. Banks are choosing to conserve cash, strengthen their balance sheets, and prepare for a period where margins are tighter and growth is slower. For ordinary shareholders, that might mean recalibrating expectations: perhaps fewer celebratory moments when dividend announcements are made, but also the reassurance that the banks in which they own shares are prioritising long-term stability over short-term generosity.
In the end, a smaller dividend is not necessarily a negative development; rather, it indicates that banks are strategically positioning themselves for long-term success, ensuring their resilience to reward shareholders more sustainably when the market conditions improve.
