What changed
RBI revised the criteria for UCBs to declare dividend without prior permission, replacing the earlier 2009 circular. Banks now need to comply with five specific parameters including CRAR norms, net NPA below 5%, no CRR/SLR default, full provisioning, and dividend from net profit after adjustments. UCBs with net NPA between 5% and 10% can approach the regional office for permission.
What it means for you
UCBs with strong asset quality and regulatory compliance can now distribute dividends more freely, reducing administrative burden. Banks with net NPA above 5% but below 10% still have a pathway via RBI approval, but those above 10% are effectively barred. This encourages better NPA management and provisioning discipline among urban co-operative banks.
What you must do
- Verify your UCB meets all five criteria: CRAR compliance, net NPA <5%, no CRR/SLR default, full provisions, and dividend from net profit after losses.
- If net NPA is between 5% and 10%, prepare a detailed application to your regional RBI office for dividend permission.
- Ensure all provisions as per prudential norms and last inspection report are fully made before declaring any dividend.
- Maintain records of CRR/SLR compliance for the relevant year to avoid default issues.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), RBI regional offices handling UCB supervision
Can a UCB with net NPA above 10% declare dividend?
No. The circular allows dividend only if net NPA is below 5% (without permission) or between 5% and 10% (with RBI regional office approval). Banks with net NPA above 10% cannot declare dividend under this framework.
What happens if a UCB fails to meet CRR/SLR requirements during the year?
Any default in CRR/SLR during the year for which dividend is proposed disqualifies the bank from declaring dividend without prior permission, even if other criteria are met.
Is prior RBI approval needed for all UCBs declaring dividend?
No. UCBs that meet all five parameters (including net NPA below 5%) can declare dividend without prior permission. Only those with net NPA between 5% and 10% need to approach the regional office for approval.