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:
||Type of NBFC
||Maximum Dividend Pay-out Ratio
||Core Investment Company
||Standalone Primary Dealers
- 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.
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.