Skip to main content

Declaration of dividend by UCBs

Reserve Bank of India (RBI) has issued guidelines on treatment of Dividend Equalisation Fund (DEF) maintained by Primary (Urban) Co-operative Banks (UCBs).

What are the guidelines on declaration of dividend by Primary (Urban) Co-operative Banks (UCBs)?

Primary (Urban) Co-operative Banks (UCBs) may declare dividend without prior permission of Reserve Bank of India (RBI) subject to compliance with the following parameters –

  • Compliance with CRAR norms.
  • Net NPA of less than 5% after making all necessary provisions (including provisions required as per assessment made by RBI in the last inspection report).
  • There is no default in CRR / SLR during the year for which dividend is proposed.
  • All required provisions have been made for NPAs, investments and other assets as per prudential norms.
  • Dividend is paid out of the net profit and after making all statutory and other provisions and adjustment for accumulated losses in full.

UCBs complying with all the above parameters except net NPA, and desirous of declaring dividend may approach RBI for permission for declaring dividend provided the Net NPA is less than 10%.

What are other guidelines on payment of dividend by UCBs?

  • The rate of dividend payable to the investors will be a fixed rate or a floating rate referenced to a market determined rupee interest benchmark rate.
  • The payment of dividend by the bank shall be subject to availability of distributable surplus out of current year’s profits, and if –
    • CRAR is above the minimum regulatory requirement.
    • Impact of such payment does not result in bank's CRAR falling below or remaining below the minimum regulatory requirement.
    • Balance sheet as at the end of the previous year does not show any accumulated loss.
  • The dividend shall not be cumulative, i.e., dividend missed in a year shall not be paid in subsequent years even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. 
  • When dividend is paid at a rate lesser than the prescribed rate, the unpaid amount will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum.

What are the guidelines on treatment of Dividend Equalisation Fund (DEF)?

The following violations were observed regarding Dividend Equalisation Fund (DEF) maintained by UCBs –

  • Some UCBs have created the Dividend Equalisation Fund (DEF) through appropriation of profits, with an intent to utilise these balances to pay dividend in future years, when profits are not sufficient or where the bank has posted a net loss. 
  • UCBs have also been considering the balances in DEF as part of Tier-II capital.

However, the extant guidelines prohibit dividend payments from previously accumulated profits or reserves and mandate that dividend can only be paid by the banks from net profit of the current year after making all statutory and other provisions and after adjustment for accumulated losses in full. Therefore, as a one-time measure –

  • The balances in the DEF shall be transferred to general reserves / free reserves. 
  • The credit balances in general reserves / free reserves, shall qualify as Tier-I capital.

Suitable disclosures shall be made of such transfers in the ‘Notes on Accounts’ to the Balance Sheet.


References

Reserve Bank of India. (2012, July 05). 'Declaration of dividend by UCBs'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=7426&Mode=0

Reserve Bank of India. (2024, July 30). 'Guidelines on treatment of Dividend Equalisation Fund (DEF)- Primary (Urban) Co-operative Banks (UCBs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12714&Mode=0

Reserve Bank of India. (2024, April 01). 'Master Circular - Prudential Norms on Capital Adequacy - Primary (Urban) Co-operative Banks (UCBs)'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=12654


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Modified Interest Subvention Scheme for Agricultural Loans

Reserve Bank of India (RBI) has published the modified interest subvention scheme (MISS) for short term loans for agriculture and allied activities availed through Kisan Credit Card (KCC) during the financial year 2025-26. Which loans are covered under modified interest subvention scheme (MISS)? The short-term crop loans and short-term loans for allied activities including animal husbandry, dairy, fisheries, bee keeping etc. up to an overall limit of ₹3 lakh to farmers through KCC during the year 2025-26 will be covered for interest subvention. Which lending institutions are covered under MISS? The MISS is applicable to the lending institutions viz. Public Sector Banks (PSBs) and Private Sector Banks (in respect of loans given by their rural and semi-urban branches only), Small Finance Banks (SFBs) and computerized Primary Agriculture Cooperative Societies (PACS) ceded with Scheduled Commercial Banks (SCBs), on use of their own resources.  How much is the interest subvention? The a...
Post a Comment
Read more

Digital Payments Awareness Week 2026

Reserve Bank of India (RBI) is observing digital payments awareness week from March 09 to 15, 2026. Digital Payments Awareness Week (DPAW) Digital Payments Awareness Week (DPAW) is an initiative to highlight the impact and importance of digital payments and to create awareness about safe usage of digital payment products.  Digital Payments Awareness Week (DPAW) 2026 Reserve Bank of India (RBI) is observing DPAW 2026 from March 09 to 15, 2026.  Under the mission ‘Har Payment Digital’, the theme for the current year is ‘Thoda Dhyan Se’ (be alert/ be careful). The theme emphasises the safe use of digital payments. ‘Har Payment Digital’ mission RBI had launched the mission ‘Har Payment Digital’ on the occasion of the DPAW 2023. This is part of RBI’s endeavour to make every person in India a user of digital payments. Previous Digital Payments Awareness Weeks (DPAWs) Year Theme 2025 ‘India Pays Digitally’ under the mission ‘Har Payment Digital’ ...
Post a Comment
Read more

Export and Import of Goods and Services

Reserve Bank of India (RBI) has issued regulations on export and import of goods and services. What are the regulations for declaration of exports? An exporter of goods shall furnish to the specified authority, a declaration in the Export Declaration Form (EDF) specifying the amount representing the full export value of goods, at the time of export. EDF will be deemed to be submitted as part of shipping bill for goods exported through Electronic Data Interchange (EDI) port. An exporter of services shall furnish to the specified authority, a declaration in EDF specifying the amount representing the full export value of services, within 30 days from the end of month in which invoice for services has been raised. The exporter of services who has exported services to one or more recipients in a month, may submit a single EDF for all such exports. The exporter of services other than software, may submit an EDF on or before the date of receipt of payment. In the case of a non-EDI port for ex...
Post a Comment
Read more

FEMA - Regulations on Guarantees

Reserve Bank of India (RBI) had issued regulations governing guarantees under the Foreign Exchange Management Act, 1999 (FEMA). What is a guarantee? A guarantee, including a counter-guarantee, means a contract, by whatever name called, to perform the promise, or discharge a debt, obligation or other liability (including a portfolio of debts, obligations or other liabilities), in the event of default by the principal debtor. Who are the participants in a guarantee transaction? Principal debtor – a person in respect of whose default the guarantee is given. Surety – a person who gives a guarantee. Creditor – a person to whom the guarantee is given. When can a person resident in India act as surety / principal debtor? A person resident in India may act as a surety / principal debtor for a guarantee, subject to conditions that – The underlying transaction for which the guarantee is being given or arranged is not prohibited under FEMA guidelines. The surety and the principal debtor are eligi...
Post a Comment
Read more

Priority Sector Lending (PSL) guidelines (updated as on January 19, 2026)

Reserve Bank of India (RBI) has issued the revised guidelines on Priority Sector Lending (PSL) which has come into effect from April 01, 2025.  To whom does Priority Sector Lending (PSL) guidelines apply? Priority Sector Lending (PSL) guidelines apply to – Commercial Bank [including Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank (LAB)] Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank  What are the categories under PSL? The categories under priority sector are as follows – Agriculture Micro, Small and Medium Enterprises Export Credit Education Housing Social Infrastructure Renewable Energy Others What are the PSL targets for banks? The targets and sub-targets set under PSL, to be computed on the basis of the Adjusted Net Bank Credit (ANBC) / Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE) as applicable as on the corresponding date of the preceding year are as below – Categories Total Priority Sector ...
Post a Comment
Read more