RBI pins riders on dividend payouts by PDs

The Reserve Bank of India (RBI) on Friday put riders on the dividend amount primary dealers (PDs) can declare, if they can at all announce any dividend.

According to central bank circular, no PDs having a capital adequacy ratio below the regulatory minimum of 15 per cent in any of the previous four quarters can declare any dividend.

The revised guidelines pertaining to declaration of dividend will be applicable for the year 2003- 04 onwards.

For PDs with a capital adequacy ratio between 15 to 20 per cent in all the four quarters, RBI has capped the dividend payout ratio at the same level as that for the banking sector at 33.3 per cent.

PDs with a capital adequacy ratio in excess of 20 per cent (during the four quarters of the previous year) can have a dividend payout ratio in excess of 33.3 per cent, but not more than 50 per cent. The proposed dividend should be payable out of the current year's profits.

The central bank has been advising PDs to formulate a prudent dividend policy so as to build up sufficient reserves as a cushion against adverse price movements.

The decision to cap the dividend pay out ratio was taken in consultation with the Standing Technical Advisory Committee on Financial Regulation (STACFR).

The PD should comply with the regulations on transfer of profits to statutory reserves and should adopt the regulatory guidelines relating to provisioning and valuation of securities.

In the event that the profit for the relevant period includes any extraordinary profit income, the payout ratio should be computed after excluding such extraordinary items.

Further, the financial statements pertaining to the fiscal year for which the PD is declaring dividend should be free of any qualifications by the statutory auditors, which have an adverse bearing on the profit during that year, RBI pointed out.