prpri Declaration of Divided by NBFCs Declaration of Divided by NBFCs

Declaration of dividends by NBFCs

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

Applicability – All NBFC’s regulated by RBI

Effective Date – Effective for declaration of dividend from the profit of F.Y. 2021 – 22 and onwards.

Consideration before proposal of dividend by Board:

  • Supervisory findings of RBI, NHB on divergence in classification & provisioning of NPA
  • Auditor Qualification on financial statements
  • Long term growth plan of NBFC

Eligibility Criteria: Minimum Prudential Norms

  • Minimum Capital Adequacy Ratio of 15%, In case of Standalone Primary Dealers(SPD) 20% for each of the last 3 years including as at the close of financial year for which dividend is proposed
  • Net NPA ratio shall be less than 6% in each of the last 3 years including as at the close of financial year for which dividend is proposed.
  • NBFC’s shall comply with Section 45 IC of the RBI Act 1934 or any other restriction, if any, imposed by RBI

Exception: NBFC other than SPD which doesn’t meet prudential requirements for each of the last 3 financial years may declare dividend subject to following:

  • Maximum Dividend Payout Ratio 10%
  • Meets Capital Adequacy Ratio for the Financial Year for which dividend is proposed.
  • Net NPA must be less than 4% as at the end of financial year

In case of SPD which have CRAR at or above 15% but less than 20% during each of the quarters of the previous year, may pay dividend but Dividend Payout Ratio shall not exceed 33.3%

Quantum of Dividend Payable:

S. No. Type of NBFC Maximum Dividend Pay-out Ratio
1 NBFC ND No Ceiling
2 Core Investment Company 60
3 Standalone Primary Dealers 60
4 Other NBFCs 50

Other Conditions:

  • Proposed Dividend shall include both dividend on equity and compulsory convertible preference shares eligible for inclusion in Tier I Capital
  • Any exceptional or extra ordinary profit/income or any other item that indicates an overstatement of net profit, the same shall be reduced.
  • Dividend Payout Ratio: 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.
  • RBI shall not entertain any request for ad-hoc dispensation on declaration of dividend.

Reporting Requirement:

The report shall be furnished within a fortnight after declaration of dividend to the Regional Office of the Department of Supervision of the Reserve Bank/ Department of Supervision of NHB, under whose jurisdiction it is registered.

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Location: Muzaffarnagar, Uttar Pradesh, India
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July 2021