What changed
RBI consolidated and updated prudential norms for dividend declaration by RCBs into a single comprehensive direction. The new framework replaces earlier instructions and sets clear eligibility criteria including a maximum NNPA ratio of 5% and mandatory compliance with capital adequacy, CRR, and SLR requirements. It also aligns dividend treatment with credit risk transfer guidelines.
What it means for you
RCBs must now meet stricter financial health benchmarks before declaring dividends, ensuring capital conservation and asset quality. Banks with NNPA above 5% or non-compliance with CRR/SLR cannot pay dividends, protecting depositor interests. The Board must assess capital projections and economic outlook, adding governance rigor. This may constrain dividend payouts for weaker banks but strengthens sector stability.
What you must do
- Review your bank's NNPA ratio and ensure it is ≤5% before proposing any dividend.
- Confirm full compliance with CRAR, CRR, and SLR requirements for the relevant financial year.
- Verify all statutory provisions (impaired assets, income tax, employee benefits) are made and accumulated losses fully adjusted.
- Ensure dividend is paid only from net profit of the current financial year after all provisions and loss adjustments.
- Document Board-level assessment of current and projected capital position and economic outlook before declaring dividend.
Who it affects
Rural Co-operative Banks (State Co-operative Banks and Central Co-operative Banks), Board of Directors of RCBs, Auditors and compliance teams of RCBs
What is the maximum NNPA ratio allowed for an RCB to declare dividends?
The NNPA ratio must be equal to or below 5% for the financial year for which dividend is proposed.
Can an RCB pay dividend from previous years' profits?
No, dividend must be paid out of the net profit of the financial year for which dividend is being paid, after making all statutory provisions and adjusting accumulated losses in full.
What happens if an RCB fails to meet CRR or SLR requirements during the year?
The bank cannot declare dividends unless it has complied with CRR and SLR requirements throughout the financial year for which dividend is proposed.