What changed
RBI partially modified paragraphs (A) 2.7(b) & (c), (B) 2.8.1(d) & (e), and 2.8.2 of the July 2008 preference share guidelines. For Perpetual Non-Cumulative Preference Shares (PNCPS), missed dividends cannot be paid in future years even if profits and CRAR permit. For Perpetual Cumulative Preference Shares (PCPS) and Redeemable Cumulative Preference Shares (RCPS), unpaid coupons become a liability and may be paid later. For Redeemable Non-Cumulative Preference Shares (RNCPS), deferred coupons cannot be paid later.
What it means for you
UCBs issuing PNCPS must ensure dividend discipline—missed dividends are permanently lost to investors. For PCPS/RCPS, unpaid coupons accumulate as a liability, giving banks flexibility but increasing future obligations. All instances of non-payment or reduced payment must be reported to RBI's Urban Banks Department Central Office.
What you must do
- Update your board-approved policy on preference share dividend/coupon payments to reflect these modified rules.
- Ensure systems track missed dividends on PNCPS as permanently forgone, not as arrears.
- For PCPS/RCPS, record unpaid coupons as a liability and plan for future payment subject to profit and CRAR conditions.
- Report all instances of non-payment or reduced payment of dividend/coupon to RBI's Urban Banks Department Central Office.
Who it affects
All Primary (Urban) Cooperative Banks issuing preference shares, Treasury and finance teams managing capital instruments, Compliance and reporting departments
Can we pay missed dividends on PNCPS in a later year if profits improve?
No. The modified guidelines clearly state that missed dividends on Perpetual Non-Cumulative Preference Shares are non-cumulative and cannot be paid in future years, even if adequate profit is available and CRAR is above the regulatory minimum.
What happens to unpaid coupons on PCPS or RCPS?
Unpaid or partly unpaid coupons on Perpetual Cumulative Preference Shares and Redeemable Cumulative Preference Shares become a liability. The bank may pay them in later years, provided it meets the required conditions (adequate profit and CRAR).
Do we need to report every instance of non-payment to RBI?
Yes. All instances of non-payment of dividend or coupon, or payment at a rate lower than prescribed, must be reported to the Chief General Manager-in-Charge of Urban Banks Department, Central Office, RBI, Mumbai.