All urban cooperative banks (UCBs) will now be permitted to declare dividends on shares without prior approval of the Reserve Bank of India (RBI), provided they meet certain conditions, according to a notification by the central bank.
Under the present rules, only UCBs classified in grades other than Grade II to IV can declare dividend without prior approval of the RBI. UCBs classified in Grade II have to get permission of the RBI while grade III and IV UCBs are barred from declaring dividend until they are upgraded.
However, RBI has introduced a revised system of rating of UCBs from March 31, 2009, based on the CAMELS model. Consequently, the grading system has ceased to exist.
Now, although a UCB does not need to seek the RBI’s permission to declare dividend, certain conditions must be fulfilled. A UCB must comply with capital to risk-weighted assets ratio (CRAR) norms, have a net non-performing assets ratio of below 10 per cent after provisions, and must not have defaulted on cash reserve ratio and statutory liquidity ratio requirements in the year for which the dividend is proposed.
It must also ensure that required provisions have been made for NPAs, investments and other assets according to the prudential norms prescribed by the RBI and that dividend is paid out of the net profit after making all statutory provisions and adjustment for accumulated losses in full.