The Reserve Bank of India (RBI) has decided to prescribe guidelines on distribution of dividend by NBFCs to infuse greater transparency and uniformity in the practice.
The guidelines will be effective for declaration of dividend from the profit for the financial year ending March 31, 2022 and onwards.
“The board of directors, while considering the proposals for dividend, will take into account supervisory findings of the Reserve Bank (National Housing Bank (NHB) for HFCs) on divergence in classification and provisioning for non-performing assets (NPAs), qualifications in the auditors’ report to the financial statements; and long-term growth plans of the NBFC,” the RBI said in a circular.
“The board shall ensure that the total dividend proposed for the financial year does not exceed the ceilings specified in these guidelines,” the circular said.
The NBFCs will need to comply with the minimum prudential requirements to be eligible to announce dividend.
One of the eligibility criteria is that the net NPA ratio should be less than 6% in each of the last three years, including as at the close of the financial year for which dividend is proposed to be declared.
While for NBFCs that do not accept public funds and do not have any customer interface, no specific ceilings on dividend payout has been set, the maximum dividend payout ratio for core investment companies is 60%, standalone primary dealers 60% and and other NBFCs 50%.
“The Reserve Bank shall not entertain any request for ad-hoc dispensation on declaration of dividend,” the circular said.
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