The board will have to keep in mind long-term growth plans of the NBFC while declaring dividend. NFBCs will also have to report details of dividend declared during the financial year to the RBI.
The Reserve Bank of India (RBI) on Thursday came out with dividend distribution guidelines for non-banking finance companies (NBFCs) in order to infuse greater transparency and uniformity in the practice. The regulator has mandated that net NPA ratio of the NBFC concerned should be less than 6% in each of the last three years for declaring dividend.
Similarly, the RBI has prescribed applicable regulatory capital requirement in different types of NBFCs. For example, a deposit taking NBFCs will need to have a minimum capital adequacy ratio of 15%. However, for housing finance companies, the tier-I and tier-II capital should not be less than 13% as on March 2020, 14% as on March 2021 and 15% as on March 2022 for declaring dividend.
The guidelines also prescribe ceilings on dividend payout ratios for NBFCs. The maximum dividend payout ratio could be 60% for an NBFC which is a core investment company. However, there is no ceiling specified for NBFCs that do not accept public funds and do not have any customer interface. The proposed dividend should include both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 capital, the RBI said.
The board will have to keep in mind long-term growth plans of the NBFC while declaring dividend. NFBCs will also have to report details of dividend declared during the financial year to the RBI. The board of directors of the NBFC, while considering the proposals for dividend, will take into account supervisory findings of the RBI on divergence in classification and provisioning for NPAs.
In December 2020, the RBI had invited suggestions on draft guidelines on dividend payout for NBFCs. The guidelines issued on Thursday shall be effective for declaration of dividend from the profits of the financial year ending March 31, 2022, and onwards.
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