The Reserve Bank of India has issued the Reserve Bank of India (Local Area Banks – Prudential Norms on Declaration of Dividend) Directions, 2026, which will be effective from FY 2026–27, under the powers conferred by the Banking Regulation Act, 1949. The Directions prescribe prudential conditions for declaration of dividend by Local Area Banks (LABs), requiring compliance with regulatory capital norms, positive Adjusted Profit After Tax (PAT), and absence of regulatory restrictions. The Board must consider factors such as NPA divergence observed by RBI, auditors’ report, capital adequacy position, and long-term growth plans before approving dividends. The framework introduces a CRAR-based dividend payout structure, allowing dividends up to specified limits depending on the Capital to Risk-Weighted Assets Ratio (CRAR), subject to an overall cap of 80% of PAT. The Directions also prohibit payment of dividend from extraordinary profits, overstated PAT identified by auditors, or unrealised gains from Level 3 financial instruments, and require reporting of dividend declaration to RBI’s Department of Supervision within a fortnight, while retaining RBI’s power to restrict dividend distribution in cases of regulatory non-compliance.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13324&Mode=0
