What changed
RBI has issued the Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Declaration of Dividends) Directions, 2025, effective November 28, 2025. These directions specify that a UCB may declare dividends only if it meets all conditions: compliance with regulatory capital requirements, NNPA ratio less than 5% after all provisions, no default in CRR/SLR maintenance during the financial year, all required provisions made for NPAs/investments/other assets, and dividend paid out of net profit after all provisions and accumulated losses. If a UCB meets all conditions except NNPA ratio (which must be less than 10%), it may approach the respective Regional Office of RBI for permission.
What it means for you
These directions ensure that Urban Co-operative Banks maintain prudential norms before declaring dividends, specifically requiring a NNPA ratio below 5% for automatic declaration or below 10% with RBI permission, along with capital adequacy, CRR/SLR compliance, and full provisioning. This aims to protect the stability of the banking system by preventing dividend declarations that could undermine capital adequacy or NPA management.
What you must do
- Review your bank's capital adequacy and NPA management before declaring dividends.
- Ensure compliance with regulatory capital requirements and NNPA ratio.
- Maintain CRR/SLR and make necessary provisions for NPAs, investments, and other assets.
- Approach the Regional Office of RBI for permission to declare dividend if NNPA ratio is less than 10%.
Who it affects
Urban Co-operative Banks, Regional Offices of RBI, Board of Directors of UCBs
What are the conditions for declaring dividends by Urban Co-operative Banks?
UCBs must comply with regulatory capital requirements, have NNPA ratio less than 5% after all provisions (including those from RBI inspection), have no default in CRR/SLR maintenance during the financial year, make all required provisions for NPAs, investments, and other assets, and pay dividends out of net profit after all statutory/other provisions and adjustment for accumulated losses.
What happens if a UCB's NNPA ratio is less than 10% but not less than 5%?
If the UCB meets all other conditions except the NNPA ratio (which must be less than 10%), it may approach the respective Regional Office of RBI for permission to declare dividend.
What is the prudential treatment of reversal of excess provision, dividend payment, and unrealized profits?
This is guided by the instructions contained in Reserve Bank of India (Urban Co-operative Banks – Transfer and Distribution of Credit Risk) Directions, 2025.