Source: Reserve Bank of India · RBI/2008-09/497 · issued 15 Jun 2009 · ~2 min read
Quick answerRBI has replaced the old gradation system with CAMELS rating for UCBs. Now, UCBs can declare dividends without prior RBI approval if they meet five conditions: CRAR compliance, net NPA below 10%, no CRR/SLR defaults, full provisioning, and dividend from net profit after statutory adjustments.
What changed
RBI introduced a CAMELS-based rating system for UCBs from the March 31, 2009 inspection cycle, replacing the earlier gradation system. Consequently, the dividend declaration criteria have been revised: UCBs no longer need prior RBI approval if they meet five specified parameters, including net NPA below 10% and CRAR compliance. Banks that meet all conditions except the net NPA threshold must seek permission from the concerned Regional Office.
What it means for you
UCBs now have a clearer, rule-based path to declare dividends without case-by-case RBI approval, reducing regulatory burden. However, the net NPA cap of 10% is a strict gate; banks with higher NPAs must still approach RBI. This aligns dividend payouts with prudential norms, protecting depositor interests and ensuring capital adequacy.
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
Verify your UCB's CAMELS rating and ensure compliance with all five dividend declaration conditions before any payout.
Confirm net NPA is below 10% after making all provisions as per the latest RBI inspection report.
Check that CRAR norms are met and there have been no CRR/SLR defaults in the relevant financial year.
Ensure all statutory provisions and accumulated losses are fully adjusted before declaring dividend from net profit.
If net NPA exceeds 10%, prepare a detailed application to the concerned Regional Office for prior permission.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), UCB board of directors and management, RBI regional offices handling UCB supervision
repealed_by — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
Status change: withdrawn03 Aug 2026, 04:00 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
What happens if our UCB's net NPA is above 10%?
You cannot declare dividend without prior RBI permission. You must approach your concerned Regional Office with a request, even if all other conditions are met.
Does the CAMELS rating replace the old grading system completely?
Yes, from the March 31, 2009 inspection cycle, the gradation system (Grade II to IV) has ceased. UCBs are now rated under CAMELS, and dividend rules are based on this new framework.
Can we declare dividend if we have defaulted on CRR/SLR during the year?
No. One of the five conditions is no default in CRR/SLR during the year for which dividend is proposed. Any such default disqualifies automatic declaration.
📜 This document’s life story (2 recorded events, each backed by RBI’s own words)
RBI’s words: “Please refer to our circular UBD.CO.BPD (PCB) Cir. No. 70 /12.05.001/2008-09 dated June 15, 2009”
Repealed byRBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
RBI’s words: “Official withdrawal register entry #1923: UBD.CO.BPD.(PCB).Cir.No.70/12.05.001/2008-09 — "Declaration of Dividend by UCBs" dated June 15, 2009”
📜 Read the original circular — full text as issued by RBI
RBI/2008-09/497
UBD.CO. BPD. (PCB) Cir. No. 70 /12.05.001/2008-09
June 15, 2009
To
Chief Executive Officer
All Primary (Urban) Co-operative Banks
Dear Sir / Madam
Declaration of dividend by UCBs
Please refer to our circular BSD.IP.PCB.16/12.05.03/2003-04 dated September 19, 2003 on the captioned subject advising the criteria for declaration of dividend by UCBs. As per the extant instructions, UCBs classified in grade other than Grade II to IV may declare dividend without prior approval of the Reserve Bank subject to certain conditions. UCBs classified in Grade II should obtain prior permission of the Reserve Bank for declaration of dividend.
2. It is advised that Reserve Bank of India has introduced a revised system of 'Rating" of the UCBs based on the CAMELS model from the inspection cycle March 31, 2009. With the introduction of the system of rating, the system of gradation of the banks has ceased to exist.
3. It has, therefore, been decided that UCBs may declare dividend without prior permission of the Reserve Bank subject to compliance with the following parameters.
i ) Compliance with CRAR norms as prescribed by RBI.
ii) Net NPA are less than 10% after making all necessary provisions as per the assessment made by RBI in its last inspection report.
iii) There is no default in CRR / SLR during the year for which dividend is proposed.
iv) All the required provisions have been made for NPAs, investments and other assets as per the prudential norms prescribed by RBI.
v) Dividend is paid out of the net profit and after making all statutory provisions and adjustment for accumulated losses in full
4. UCBs complying with all other parameters, except the one at para 3 (ii) above, may approach the concerned Regional Office of the Reserve Bank for permission for dividend declaration.
Yours faithfully,
(A, K. Khound)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/497 · issued 15 Jun 2009. The plain-English explanation above is BankPulse’s own independent summary.
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BankPulse Compliance Evidence Pack — generated 03 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=5034&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.
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