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RBI prescribes guidelines on distribution of dividends by NBFCs

The Reserve Bank of India (RBI) has prescribed guidelines relating to the distribution of dividend by NBFCs. The guidelines will become effective against declarations of dividend from the profit for the financial year ending March 31, 2022 and afterwards. While considering proposals for dividends, the board of directors will have to take into account supervisory findings of the Reserve Bank (National Housing Bank (NHB) for HFCs) on divergence in classification and provisioning for non-performing assets (NPAs). It will also have to look into the qualifications in the auditors ’ report to the financial statements and the long-term growth plans of the NBFC. NBFCs will have to comply with minimum prudential requirements to be eligible to announce dividend.

The net NPA ratio of an NBFC must be less than 6%in each of the three preceding years, including at the close of the financial year for which dividend is proposed to be declared. No ceilings on dividend payouts have been set for NBFCs that do not accept public funds. The maximum dividend payout ratio for core investment companies is 60%, for standalone primary dealers is 60%, and and other NBFCs is 50%. There are no provisions for ad hoc dispensation on declaration of dividend.

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