The Reserve Bank of India (RBI) on November 28, 2025, issued the Reserve Bank of India (Local Area Banks – Prudential Norms on Declaration of Dividends) Directions, 2025.
The following has been stated: -
•The RBI's (Local Area Banks – Prudential Norms on Declaration of Dividends) Directions, 2025, regulate dividend declaration by Local Area Banks (LABs) effective immediately.
•LABs are eligible to declare dividends only if their CRAR is at least 9% for the preceding two years and the current financial year, and their Net NPA ratio is less than 7% for the current year.
•The Dividend Payout Ratio is capped at 40% and is determined by a matrix based on the bank's CRAR and NNPA ratios, with extraordinary profits excluded from the calculation.
•The bank's Board must consider capital position, NPA divergence, and statutory compliance.
•Declared dividends must be paid out of the current year's net profit and reported to the RBI within a fortnight.
These directions shall become effective on November 28, 2025.
[Notification No.: RBI/DOR/2025-26/242 DOR.ACC.REC.161/ 21-02-067/2025-26]
