RBI Prescribes Guidelines On Distribution Of Dividend By NBFCs

The Reserve Bank of India (RBI) has issued guidelines for the eligibility criteria for non-banking finance companies (NBFCs) to declare dividends. The new guidelines will be effective for declaration of dividend from the profits of the financial year ending March 31, 2022 and onwards, the RBI said. RBI noted that the Dividend Payout Ratio is the ratio between the amount of the dividend payable in a year and the net profit as per the audited financial statements for the financial year for which the dividend is proposed. Proposed dividend shall include both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 Capital. In case the net profit for the relevant period includes any exceptional and/or extraordinary profits/ income or the financial statements are qualified (including 'emphasis of matter') by the statutory auditor that indicates an overstatement of net profit, the same shall be reduced from net profits while determining the Dividend Payout Ratio. The Maximum Dividend Payout Ratio is having no ceiling for NBFCs that do not accept public funds and do not have any customer interface. For core investment company and standalone primary dealers, the RBI has prescribed a ceiling of 60%. For other NBFCs, the ceiling is prescribed at 50%.

According to the RBI, to become eligible to declare dividend, an NBFC needs to meet the applicable regulatory capital requirement for each of the last three financial years including the financial year for which the dividend is proposed. Also, standalone primary dealers should maintain a minimum CRAR of 20% for the financial year (all the four quarters) for which dividend is proposed, the RBI said. Additionally, the net NPA ratio of NBFCs need to be less than six percent in each of the last three years, including at the close of the financial year for which dividend is proposed to be declared, the RBI said.

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