RBI issues guidelines for NBFCs’ dividend declarations

Mumbai, To infuse greater transparency along with a uniform practice, the Reserve Bank of India on Thursday issued guidelines for NBFCs to declare dividends.

These guidelines shall be effective for declaration of dividends from the profits of the financial year ending March 31, 2022 and onwards.

“In order to infuse greater transparency and uniformity in practice, it has been decided to prescribe guidelines on distribution of dividend by NBFCs,” the RBI said.

As per the guidelines, NBFCs, other than Standalone Primary Dealers, shall have met the applicable regulatory capital requirement for each of the last three financial years, including the financial year for which the dividend is proposed.

The Standalone Primary Dealers (SPDs) should have maintained a minimum CRAR of 20 per cent for the financial year (all the four quarters) for which the 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.”

“In case the net profit for the relevant period includes any exceptional and or extra-ordinary profits or income or the financial statements are qualified 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’.”

According to the RBI, a NBFC which does not meet the applicable prudential requirement for each of the last three financial years, may be eligible to declare dividend, subject to a cap of 10 per cent on the dividend payout ratio.

However, the NBFC must meet the applicable capital adequacy requirement in the financial year for which it proposes to pay the dividend.

Furthermore, its net NPA should be less than 4 per cent at the close of the financial year.

“In case of SPDs which have a CRAR at or above the regulatory minimum of 15 per cent during each of the quarters of the previous year, but lower than 20 per cent in any of those quarters, the dividend payout ratio shall not exceed 33.3 per cent.”