What changed
RBI has introduced new prudential norms for Local Area Banks (LABs) on declaration of dividends. LABs must now consider factors like capital position, provisioning, and economic environment before declaring dividends.
What it means for you
These norms aim to ensure LABs maintain a stable financial position and do not compromise on capital adequacy and provisioning. Non-compliance may impact LABs' ability to declare dividends.
What you must do
- Review and update dividend declaration policies to align with RBI's new norms.
- Ensure CRAR is at least 9% for the preceding two financial years and the current year.
- Maintain NNPA ratio below 7% for the current year.
- Comply with minimum regulatory capital requirements and maintain adequate provisions.
Who it affects
Local Area Banks (LABs), Bank Boards and Management, Regulatory Authorities
What happens if a LAB does not meet the CRAR norm?
If a LAB does not meet the CRAR norm for the preceding two years but has CRAR at least 9% for the current year, it can declare dividends only if its NNPA ratio is less than 5%.