Home › Circulars › RBI/2008-09/425

RBI Tweaks Preference Share Rules for Regulatory Capital

No longer current — withdrawn, no replacement on file yet

Source: Reserve Bank of India · RBI/2008-09/425 · issued 02 Apr 2009 · ~2 min read

Quick answerRBI partially modified guidelines for preference shares as regulatory capital, clarifying dividend/coupon payment rules for PNCPS, PCPS, RNCPS, and RCPS. Missed dividends on non-cumulative instruments cannot be paid later; unpaid cumulative coupons become liabilities. Banks must report non-payment instances to RBI.

What changed

RBI revised paragraphs 1.7(b) and (c) of Annex I (PNCPS) and 1.8.1(d), (e), and 1.8.2 of Annex II (PCPS/RNCPS/RCPS) from the October 29, 2007 circular. For PNCPS, it clarified that missed dividends are permanently forfeited even if profits and CRAR later improve. For cumulative instruments (PCPS/RCPS), unpaid coupons become liabilities and can be paid later; for RNCPS, deferred coupons are forfeited but a lower rate may be paid if conditions allow.

What it means for you

Banks issuing preference shares as regulatory capital must strictly adhere to non-cumulative dividend rules for Tier 1 PNCPS—any skipped dividend is gone forever. For Upper Tier 2 instruments, the treatment differs: cumulative instruments allow deferred coupon payments as liabilities, while non-cumulative ones do not. This ensures capital instruments maintain their loss-absorbing character and aligns with Basel norms. Banks need to update their dividend/coupon policies and reporting processes accordingly.

Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.

What banks were required to do at the time

Review and update your bank's preference share issuance terms to comply with the modified dividend/coupon payment rules.
Ensure that for PNCPS, any missed dividend is not paid in future years, even if profits and CRAR improve.
For PCPS/RCPS, treat unpaid coupons as liabilities and allow deferred payment only when conditions are met.
Report all instances of non-payment or reduced payment of dividends/coupons to RBI's DBOD and DBS central office.
Train treasury and compliance teams on the distinction between cumulative and non-cumulative instruments.

Who it affects

Commercial banks (excluding foreign banks, RRBs, and LABs) issuing preference shares as regulatory capital, Treasury departments managing capital instruments, Compliance and risk management teams, Auditors reviewing capital adequacy

❓ Common questions

Regulatory timeline

Decoded by BankPulse 2026-06-19 10:40 IST
repealed_by — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
Status change: withdrawn 05 Aug 2026, 04:00 IST

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

Can we pay a missed dividend on PNCPS in a later year if profits are high?

No. For Perpetual Non-Cumulative Preference Shares (PNCPS), any dividend missed or paid at a lesser rate cannot be paid in future years, even if the bank has adequate profit and meets the minimum CRAR.

What happens to unpaid coupons on cumulative preference shares (PCPS/RCPS)?

For PCPS and RCPS, unpaid or partly unpaid coupons become a liability. The bank may pay the due amount in later years, provided it meets the regulatory conditions at that time.

Do we need to report non-payment of dividends/coupons to RBI?

Yes. All instances of non-payment or payment at a lesser rate than prescribed must be reported to the Chief General Managers-in-Charge of DBOD and DBS at RBI's Central Office in Mumbai.

📜 This document’s life story (1 recorded event, each backed by RBI’s own words)

Repealed by RBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)

RBI’s words: “Official withdrawal register entry #1960: DBOD.No.BP.BC.120/21.01.002/2008-2009 — "Guidelines for Issuing Preference Shares as part of Regulatory Capital" dated April 2, 2009”

📜 Read the original circular — full text as issued by RBI

Notifications - Reserve Bank of India Skip to main content Selected Selected Change Language हिंदी Search the Website Search Home About Us ▼ About Us Organisation & Functions ▶ Organisation Structure Departments Offices Training Establishment ▶ College of Agricultural Banking Reserve Bank Staff College College of Supervisors RBI's Functions and Working Governors Deputy Governors Executive Directors Communication Policy of RBI Sources of Information ▶ Annual Publications Half-yearly Publications Quarterly Publications Monthly Publications Weekly Publications Occasional Publications SDDS NSDP Data Releases Publications available on Subscription General Information RBI History Museum ▶ The RBI Museum RBI Monetary Museum Notification ▼ Notifications Master Directions Master Circulars Amendment Directions Draft Notifications/Guidelines ▶ Draft Notifications/Guidelines Draft Directions (RE-wise) Index To RBI Circulars Standalone Circulars Circulars Withdrawn Press Releases Speeches & Media Interactions ▼ Speeches Media Interactions Memorial Lectures Podcasts Publications ▼ Biennial Annual Half-Yearly Quarterly Bi-monthly Monthly Weekly Occasional Reports Working Papers Legal Framework ▼ Act Rules Regulations Schemes Research ▼ External Research Schemes RBI Occasional Papers Working Papers RBI Bulletin History DRG Studies KLEMS State Statistics and Finances Statistics ▼ Data Releases Database on Indian Economy Public Debt Statistics Regulatory Reporting ▼ List of Returns Data Definition Validation rules/ Taxonomy List of RBI Reporting Portals FAQs of RBI Reporting Portals Home Notifications Notifications ( 515 kb ) Guidelines for issuing preference shares as part of regulatory capital RBI/2008-09/425 DBOD.No.BP.BC. 120 /21.01.002/2008-2009 April 2, 2009 The Chairman and Managing Director/ Chief Executive Officers of Commercial Banks (Excluding Foreign Banks, RRBs and LABs) Dear Sir Guidelines for issuing preference shares as part of regulatory capital Please refer to our circular DBOD.No.BP.BC.42/21.01.002/2007-08 dated October 29, 2007 on the Guidelines for issuing preference shares as part of regulatory capital. 2.It has been decided to partially modify Para 1.7 (b) & (c) of Annex –I and Para 1.8.1(d) & (e) , Para 1.8.2 of Annex- II of the circular which will read as follows: Annex –I Guidelines on Perpetual Non-Cumulative Preference Shares (PNCPS) as part of Tier I capital 1.7 Payment of Dividend (b) The dividend shall not be cumulative. i.e., dividend missed in a year will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. When dividend is paid at a rate lesser than the prescribed rate, the unpaid amount will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. (c) All instances of non-payment of dividend / payment of dividend at a lesser rate than prescribed in consequence of conditions as at (a) above should be reported by the issuing banks to the Chief General Managers-in-Charge of Department of Banking Operations & Development and Department of Banking Supervision, Central Office of the Reserve Bank of India, Mumbai. Annex –II Terms and conditions applicable to Perpetual Cumulative Preference Shares (PCPS) / Redeemable Non-Cumulative Preference Shares (RNCPS) / Redeemable Cumulative Preference Shares (RCPS) as part of Upper Tier 2 Capital 1.8 Payment of coupon 1.8.1 The coupon payable on these instruments will be treated as interest and accordingly debited to P& L Account. However, it will be payable only if (d) In the case of PCPS and RCPS the unpaid/ partly unpaid coupon will be treated as a liability. The interest amount due and remaining unpaid may be allowed to be paid in later years subject to the bank complying with the above requirements. (e) In the case of RNCPS, deferred coupon will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. The bank can however pay a coupon at a rate lesser than the prescribed rate, if adequate profit is available and the level of CRAR conforms to the regulatory minimum. 1.8.2. All instances of non-payment of interest/ payment of interest at a lesser rate than prescribed rate should be notified by the issuing banks to the Chief General Managers-in-Charge of Department of Banking Operations & Development and Department of Banking Supervision, Central Office of the Reserve Bank of India, Mumbai. 3. Please acknowledge receipt. Yours faithfully, ( Prashant Saran ) Chief General Manager-In-Charge 2026 All Months January February March April May June July August September October November December 2025 All Months January February March April May June July August September October November December 2024 All Months January February March April May June July August September October November December 2023 All Months January February March April May June July August September October November December 2022 All Months January February March April May June July August September October November December 2021 All Months January February March April May June July August September October November December 2020 All Months January February March April May June July August September October November December 2019 All Months January February March April May June July August September October November December 2018 All Months January February March April May June July August September October November December 2017 All Months January February March April May June July August September October November December Archives 2016 All Months January February March April May June July August September October November December 2015 All Months January February March April May June July August September October November December 2014 All Months January February March April May June July August September October November December 2013 All Months January February March April May June July August September October November December 2012 All Months January February March April May June July August September October November December 2011 All Months January February March April May June July August September October November December 2010 All Months January February March April May June July August September October November December 2009 All Months January February March April May June July August September October November December 2008 All Months January February March April May June July August September October November December 2007 All Months January February March April May June July August September October November December 2006 All Months January February March April May June July August September October November December 2005 All Months January February March April May June July August September October November December 2004 All Months January February March April May June July August September October November December 2003 All Months January February March April May June July August September October November December 2002 All Months January February March April May June July August September October November December 2001 All Months January February March April May June July August September October November December 2000 All Months January February March April May June July August September October November December 1999 All Months January February March April May June July August September October November December 1998 All Months January February March April May June July August September October November December 1997 All Months January February March April May June July August September October November December 1996 All Months January February March April May June July August September October November December 1995 All Months January February March April May June July August September October November December 1994 All Months January February March April May June July August September October November December 1993 All Months January February March April May June July August September October November December 1992 All Months January February March April May June July August September October November December 1991 All Months January February March April May June July August September October November December Top Back to previous page More Links : Bank Holidays Banking Glossary Citizen's Charter Complaints Contact Us COVID-19 Measures E-LMS Events FAQs Financial Education Forms IFSC/MICR Codes Important Websites Opportunities @ RBI RBI Clarifications RBI Kehta Hai RBI’s Vision and Values (1257 kb)--> Right to Information Act Tenders Follow RBI RSS Twitter YouTube Instagram Facebook LinkedIn &copy; Reserve Bank of India. 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Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/425 · issued 02 Apr 2009. The plain-English explanation above is BankPulse’s own independent summary.

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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4914&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.