The Reserve Bank of India (RBI) decided to made amendments to the guidelines on perpetual non-cumulative preference shares (PNCPS) as part of Tier-I capital and perpetual cumulative preference shares (PCPS) or redeemable non-cumulative preference shares (RNCPS), redeemable cumulative preference shares (RCPS) as part of upper tier-II capital.
Accordingly, talking about the guidelines on perpetual non-cumulative preference shares (PNCPS) as part of tier-I capital, the RBI said that the dividend shall not be cumulative. This essentially means the dividend missed in a year will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. When dividend is paid at a rate lesser than the prescribed rate, the unpaid amount will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum.
Talking about instruments like perpetual cumulative preference shares, redeemable non-cumulative preference shares and redeemable cumulative preference shares as part of upper tier-II capital, the RBI said that the coupon payable on these instruments will be treated as interest and accordingly debited to P& L Account.
However, it will be payable only if in the case of PCPS and RCPS the unpaid or partly unpaid coupon will be treated as a liability. The interest amount due and remaining unpaid may be allowed to be paid in later years subject to the bank complying with the above requirements.
In the case of RNCPS, deferred coupon will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. The bank can however pay a coupon at a rate lesser than the prescribed rate, if adequate profit is available and the level of CRAR conforms to the regulatory minimum.
All instances of non-payment of interest or payment of interest at a lesser rate than prescribed rate should be notified by the issuing banks to the chief general managers-in-charge of department of banking operations & development and department of banking supervision, central office of the RBI, Mumbai, noted RBI.