RBI prescribes guidelines on distribution of dividend by NBFCs
RBI has prescribed guidelines on distribution of dividend by NBFCs to infuse greater transparency and uniformity in practice. The said guidelines shall be effective for declaration of dividend from the profits of the financial year ending March 31, 2022 and onwards.
The Highlights of the Guidelines is as under:
RBI guidelines on distribution of dividend by NBFCs
The Board of Directors shall, while considering the proposals for dividend, take into account the following aspects:
(a) Supervisory findings of the Reserve Bank (National Housing Bank (NHB) for HFCs) on divergence in classification and provisioning for Non-Performing Assets (NPAs).
(b) Qualifications in the Auditors’ Report to the financial statements; and
(c) Long term growth plans of the NBFC.
The Board shall ensure that the total dividend proposed for the financial year does not exceed the ceilings specified in these guidelines.
The following minimum prudential requirements are prescribed for NBFCs to be eligible to declare dividend:
|(a) NBFCs (other than Standalone Primary Dealers) shall have met the applicable regulatory capital requirement for each of the last three2 financial years including the financial year for which the dividend is proposed.
(b) Standalone Primary Dealers (SPDs) should have maintained a minimum CRAR of 20 per cent for the financial year (all the four quarters) for which dividend is proposed.
|The net NPA ratio shall be less than 6 per cent in each of the last three years, including as at the close of the financial year for which dividend is proposed to be declared.
|(a) NBFCs shall comply with the provisions of Section 45 IC of the Reserve Bank of India Act, 1934. HFCs shall comply with the provisions of Section 29 C of The National Housing Bank Act, 1987.
(b) NBFCs shall be compliant with the prevailing regulations/ guidelines issued by the Reserve Bank. The Reserve Bank or the NHB (for HFCs) shall not have placed any explicit restrictions on declaration of dividend.
Quantum of Dividend Payable
Eligible NBFCs may pay dividend, subject to the following conditions:
(a) 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.
(b) Proposed dividend shall include both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 Capital.
(c) In case the net profit for the relevant period includes any exceptional and/or extra-ordinary 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 ceilings on dividend payout ratios for NBFCs eligible to declare dividend are as under:
|Type of NBFC
|Maximum Dividend Payout Ratio (percentage)
|NBFCs that do not accept public funds and do not have any customer interface
|Core Investment Company
|Standalone Primary Dealers
However a NBFC (other than SPD) which does not meet the applicable prudential requirement prescribed for each of the last three financial years, may be eligible to declare dividend, subject to a cap of 10 percent on the dividend payout ratio, provided the NBFC complies with the following conditions
As per Guidelines NBFC-D, NBFC-ND-SI, HFC & CIC declaring dividend shall report details of dividend declared during the financial year as per the prescribed format
Read RBI guidelines on distribution of dividend by NBFCs Click Here >>.
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