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(The Gist of PIB) RBI issues guidelines for dividend distribution by NBFCs

(THE GIST OF PIB) RBI issues guidelines for dividend distribution by NBFCs

[July-2021]

RBI issues guidelines for dividend distribution by NBFCs

The Reserve Bank of India (RBI) issued guidelines on the distribution of dividend by non-banking financial companies (NBFCs) to infuse greater transparency and uniformity in the practice.

About:

• The guidelines will be effective for the declaration of dividend from the profits of the financial year ending March 31, 2022, and onwards.
• NPA ratio should be less than 6% for dividend declaration
• The guidelines will be applicable to NFBCs regulated by RBI. As per the prescribed minimum prudential requirements for declaration of dividend, the net NPA ratio of the concerned NBFC should be less than 6 per cent in each of the last three years, including the end of the financial year for which the dividend is proposed to be declared.
• Also, NBFCs should meet the applicable regulatory capital requirement for each of the last three financial years, including the financial year for which the dividend is proposed. The guidelines prescribe a ceiling on the dividend payout ratio for NBFCs.

Dividend payout ratio for different NBFCs:

• The dividend payout ratio is the ratio of the total amount of dividends paid to shareholders relative to a company’s net income.

• For an NBFC which is a core investment company, the maximum dividend payout ratio can be 60 per cent. For other NBFCs, the dividend payout ratio can be 50 per cent. However, there is no limit specified for NBFCs that do not accept public funds and do not have a customer interface.

• RBI said the proposed dividend would include both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 capital.