The Reserve Bank of India has issued the Urban Co-operative Banks – Prudential Norms on Declaration of Dividends Directions, 2025, providing updated guidelines for dividend declaration by Urban Co-operative Banks (UCBs). The Directions are effective immediately.
Under the new framework, a UCB may declare dividend only if it meets all regulatory requirements, including compliance with capital norms, full provisioning for NPAs, investments and other assets, and no default in maintaining CRR/SLR. Dividends must be paid out of the net profit of the financial year after statutory provisions and adjustment for accumulated losses.
A key feature of the Directions is the NNPA ratio requirement. UCBs with NNPA below 5% may declare dividends subject to other conditions. Those with NNPA between 5% and 10% may declare dividends only with prior permission from the RBI Regional Office.
The Directions also provide guidance on prudential treatment of reversal of provisions and unrealized profits in line with the RBI’s 2025 Directions on Transfer and Distribution of Credit Risk. All previous circulars on dividend declaration are repealed, though past approvals and actions remain valid.
The RBI may issue clarifications if required, and its interpretation of these Directions is final and binding.