The Reserve Bank of India (RBI) on July 30, 2024, issued the Guidelines on the Treatment of Dividend Equalisation Fund (DEF)- Primary (Urban) Co-operative Banks (UCBs).
It is seen that 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. However, extant guidelines on “Declaration of Dividends by UCBs” dated July 05, 2012 ibid prohibit dividend payments from previously accumulated profits or reserves and mandate that dividends 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. It is also observed that UCBs have been considering the balances in DEF as part of Tier-II capital.
To provide a better treatment of these balances for regulatory capital purposes, it has been decided, as a one-time measure, to permit UCBs to transfer the balances in the DEF to general reserves/free reserves. The credit balances in general reserves/free reserves shall qualify as Tier-I capital as per our Master Circular ibid.
This circular applies to all Primary (Urban) Co-operative Banks. The instructions shall come into force with immediate effect.
[Notification No. RBI/2024-25/57 DOR.CAP.REC.No.30/09.18.201/2024-25]
