Reserve Bank of India (Local Area Banks – Prudential Norms on Declaration of Dividend) Directions, 2026
UR
- Applies toLocal area banks
- StatusIn force
- IssuedMar 10, 2026
- Amendmentsnone tracked
- Length33 points in 5 sections · 3 min read
The four dates on this rule
- PublishedMar 10, 2026The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyFinancial Year 2026-27The day this rule starts to apply, as RBI's own text states it.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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Opening paragraphs
Background
1. Where the power comes from
RBI issues these rules under the Banking Regulation Act.
2. Why RBI issued them
RBI states it is satisfied these rules are needed in the public interest.
BankPulse example. RBI does not have to explain each rule one by one. It states that it is satisfied the rules are necessary and expedient in the public interest. That statement is the legal footing for everything that follows.
3. When they start
The rules apply from the financial year 2026-27.
4. Who is covered
These rules bind local area banks.
5. What adjusted profit means
Adjusted profit after tax is the year's profit less half of net bad loans at 31 March.
6. What a dividend means
A dividend here is one on equity shares and includes an interim dividend.
7. Preference shares are out
A dividend on perpetual non-cumulative preference shares is not covered.
8. Unusual profit defined
Extraordinary profit takes its meaning from the accounting standards.
9. Words not defined here
Any word these rules do not define takes its meaning from the law or from ordinary trade use.
Chapter II. Declaration of dividend
Must know
1. Capital after paying
Capital must not fall below the requirement even after the dividend is paid.
2. No restriction in force
The bank must not be under any express restriction on declaring a dividend.
3. The whole payout ceiling
Whatever the table allows, the total may not exceed 80 per cent of profit after tax.
4. The floor for paying
A bank at or below 9 per cent may pay nothing.
5. The top of the table
A bank above 21 per cent may pay the whole of its adjusted profit after tax.
6. Unusual profit is barred
Exceptional or extraordinary profit may not be used to pay a dividend.
7. An overstated profit is barred
Profit the auditor says is overstated may not be used, to that extent.
8. No Level 3 gains
A bank may not pay a dividend out of unrealised gains on Level 3 instruments.
Do it
9. The board must decide
The board must consider four things before it proposes a dividend.
10. Supervisory findings count
It must weigh any divergence RBI found in how bad loans were classified and provided for.
11. The auditor's report counts
It must weigh the auditor's report, including a modified opinion or an emphasis of matter.
12. Capital position counts
It must weigh capital now and as projected against what the bank must hold.
13. Growth plans count
It must weigh the bank's long term growth plans.
14. What this book does
This book sets what a bank must satisfy before it declares a dividend, and how much it may pay.
15. Profit must be positive
Adjusted profit after tax must be positive for the year the dividend is proposed for.
Background
16. The amount is a table
A bank that qualifies reads its permitted share off a table of ten buckets.
17. Which ratio decides
How much may be paid is read against the bank's capital adequacy ratio at the end of last year.
18. Worked examples exist
RBI gives worked illustrations in an annex to the document.
19. Where reversals are dealt with
Reversed provisions and unrealised profit on transferred loans follow a separate RBI rulebook.
Chapter III. Repeal and other provisions
1. What was already gone
Anything repealed before these rules came stays repealed.
2. Past action stands
Anything done under a repealed instruction stays governed by that instruction.
3. Old approvals carry over
Approvals given under the repealed instructions are treated as given under these rules.
4. Other law still applies
These rules add to other laws and take nothing away from them.
5. RBI may clarify
RBI may issue clarifications to remove any difficulty in applying these rules.
The same subject for other kinds of institution
The same subject for other kinds of institution.
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