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

Regulatory Measures for the Foreign Exchange Market

Reserve Bank of India (RBI) has announced regulatory measures for the foreign exchange market. Cancellation and rebooking / rollovers of foreign exchange derivative contracts An Authorised Dealer shall not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled with any of the Authorised Dealers. An Authorised Dealer may, however, continue to permit users to rollover foreign exchange derivative contracts on maturity, subject to compliance with the extant directions. Threshold limit for taking positions without requirement to establish the existence of underlying Authorised Dealers were permitted to allow users to take positions upto USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure.  Further, a user was allowed to take positio...
Post a Comment
Read more

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) (Updated as on September 11, 2026)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Credit Facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs)

Reserve Bank of India (RBI) has issued guidelines on credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs). What are the guidelines on credit facilities to SCs & STs? District Level Consultative Committees formed under the Lead Bank Scheme should continue to be the principal mechanism of co-ordination between banks and development agencies.  National Scheduled Tribes Finance & Development Corporation and National Scheduled Castes Finance & Development Corporation have been set up under the administrative control of Ministry of Tribal Affairs and Ministry of Social Justice & Empowerment, respectively. Banks should advise their branches / controlling offices to render all the necessary institutional support to enable these institutions to achieve the desired objectives. Loans sanctioned to State Sponsored Organisations for Scheduled Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs and / or the marketing of the out...
Post a Comment
Read more

What is Ways and Means Advances (WMA)? (Updated as on September 25, 2026)

Reserve Bank of India (RBI) has recently announced the Ways and Means Advances (WMA) limit for the Government of India. So, what is WMA? What is Ways and Means Advances (WMA)? Ways and Means Advances (WMA) is a collateral free clean advance availed by the Central and State Governments from RBI, to tide over temporary mismatches in the receipts and payments. Section 17(5) of the Reserve Bank of India Act, 1934 empowers RBI to grant WMA to Central and State Governments, as and when required by them. What is Special WMA / Special Drawing Facility (SDF)? In addition to WMA, State Governments are also eligible for a Special Drawing Facility (SDF), which is granted against collateral of Government Securities held by the State Governments.  SDF availed by State Governments / UTs is linked to the quantum of their investments in marketable securities issued by the Government of India, including Auction Treasury Bills (ATBs).  (Updated as on June 28, 2024) Based on the recommendations m...
Post a Comment
Read more

Framework for Self-Regulatory Organisations in the FinTech Sector (Updated on September 10, 2026)

Reserve Bank of India (RBI) has released the framework for self-regulatory organisations in the FinTech sector. What are FinTechs? For the purpose of membership of an Self-Regulatory Organisations for FinTech Sector (SRO-FT), FinTechs may be defined as entities that provide technological solutions for delivery of financial products and services to businesses and consumers or encompass regulatory and supervisory compliance in partnership with traditional financial institutions or otherwise.  What is the need of Self-Regulatory Organisations for FinTech Sector? FinTechs play a pivotal role in redefining financial services by saving time, enhancing access, and lowering costs. While the FinTechs bring various innovations, the FinTech sector also raises concerns relating to customer protection, data privacy, cyber security, grievance handling, internal governance, financial system integrity, etc. A judicious balance between maximising the creative potential of FinTechs, while minimising...
Post a Comment
Read more