The Reserve Bank of India (RBI) said that in order to infuse greater transparency and uniformity in practice, it has been decided to prescribe guidelines on distribution of dividend by NBFCs. NBFCs may declare dividend, subject to compliance with the guidelines. Only those NBFCs, which comply with the following minimum prudential requirements, would be eligible to declare dividend:
NBFCs should comply with the prescribed minimum capital adequacy and leverage ratio as under:
Deposit taking Non-Banking Financial Company (NBFC-D) and Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND-SI) should have CRAR of at least 15% for last 3 years, including the accounting year for which it proposes to declare dividend.
Non-Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND) should have leverage ratio of less than 7 for the last 3 years, including the accounting year for which it proposes to declare dividend.
Core Investment Company (CIC) should have Adjusted Net Worth (ANW) of at least 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items for last 3 years, including the accounting year for which it proposes to declare dividend.
The net NPA ratio should be less than 6% in each of the last three years, including the accounting year for which it proposes to declare dividend. The RBI noted that NBFCs should comply with the provisions of Section 45 IC of the RBI Act, 1934 and with the prevailing regulations/ guideline issued by RBI. The proposed dividend should be payable only out of the current year's profit. The Reserve Bank should not have placed any explicit restrictions on the NBFC on declaration of dividend.
In case the profit for the relevant period includes any extra-ordinary profits/ income, the pay-out ratio shall be computed after excluding such extra-ordinary items. The financial statements pertaining to the year for which the NBFC is declaring dividend should be free of any qualifications by the auditors, which have an adverse bearing on the profit during that year. In case of any qualification to that effect, the net profit should be suitably adjusted while computing the dividend pay-out ratio.
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In case, subject to meeting the minimum regulatory requirement, an NBFC has different CRAR and CIC has different ANW in the last three years, dividend pay-out will be determined based on the lowest CRAR/ ANW. Dividend pay-out ratio shall be calculated as a percentage of 'dividend payable in a year' to 'net profit during the year'. These guidelines will be applicable for dividend to be declared for the financial year beginning April 01, 2020 (FY 2020-21) onwards.
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