RBI issues norms for dividend distribution by NBFCs

The board can have to bear in mind long-term development plans of the NBFC whereas declaring dividend. NFBCs will even should report particulars of dividend declared throughout the monetary 12 months to the RBI.

The Reserve Financial institution of India (RBI) on Thursday got here out with dividend distribution pointers for non-banking finance firms (NBFCs) with a view to infuse larger transparency and uniformity within the apply. The regulator has mandated that internet NPA ratio of the NBFC involved must be lower than 6% in every of the final three years for declaring dividend.

Equally, the RBI has prescribed relevant regulatory capital requirement in various kinds of NBFCs. For instance, a deposit taking NBFCs might want to have a minimal capital adequacy ratio of 15%. Nevertheless, for housing finance firms, the tier-I and tier-II capital shouldn’t be lower than 13% as on March 2020, 14% as on March 2021 and 15% as on March 2022 for declaring dividend.

The rules additionally prescribe ceilings on dividend payout ratios for NBFCs. The utmost dividend payout ratio could possibly be 60% for an NBFC which is a core funding firm. Nevertheless, there isn’t a ceiling specified for NBFCs that don’t settle for public funds and should not have any buyer interface. The proposed dividend ought to embody each dividend on fairness shares and compulsorily convertible desire shares eligible for inclusion in Tier 1 capital, the RBI stated.

The board can have to bear in mind long-term development plans of the NBFC whereas declaring dividend. NFBCs will even should report particulars of dividend declared throughout the monetary 12 months to the RBI. The board of administrators of the NBFC, whereas contemplating the proposals for dividend, will take into consideration supervisory findings of the RBI on divergence in classification and provisioning for NPAs.

In December 2020, the RBI had invited solutions on draft pointers on dividend payout for NBFCs. The rules issued on Thursday shall be efficient for declaration of dividend from the income of the monetary 12 months ending March 31, 2022, and onwards.