DECLARATION OF DIVIDEND BY NBFC’s

DECLARATION OF DIVIDEND BY NBFC’s

What is meaning of Dividend?

The term dividend has been defined under sec 2(35) of Companies Act,2013.Dividend  means the profit of the Company which is not retained in the business and its distributed among the shareholders in proportion of shares held by them in Company.

Dividend can be :

Interim: When the Board decides to declare and pay dividend between two General Meeting, its called Interim Dividend, these are usually paid on  finalization of quarterly financial accounts.

Final: After finalization of Annual accounts, the Board may recommend final dividend to shareholders for approval by shareholders at Annual General Meeting of the Company.

Applicability of RBI’S Guidelines for  NBFC’s

These guidelines hall be applicable to all NBFCs regulated by RBI as mentioned:

Applicable NBFCs as defined in paragraph 2(2) of NBFC -Systematically  Important Non Deposit taking Company and  Deposit taking Company (Reserve  Bank) directions,2016

 

Applicable NBFCs as defined in paragraph 2(2) of NBFC – Non -Systematically  Important Non Deposit taking Company and  Deposit taking Company (Reserve  Bank) directions,2016

 

Effective date:

These guidelines shall be applicable for declaration of dividend from profits of the Company for the Financial year ending March,2022.

Eligibility Cretaria:

NBFCs should comply with  the minimum requirements to be able to declare dividends:

Parameter	Requirement
Capital Adequacy	NBFCs other than SPD shall have met the capital adequacy requirements for each of the last three financial years including the financial year in which the dividend is proposed to be declared. SPD(Standalone Primary Dealers) should have maintained a minimum CRR of 20% for each of the financial years for which the dividend is proposed.
Net NPA	Net NPA ratio shall be less than 6% in each of the last three Financial years for which the dividend  is proposed to be declared
Other Criteria	NBFCs shall comply with the provisions of section 45 IC  of RBI Act,1934.HFC  shall comply with the provisions of section 29C of  National Housing Bank Act,1987. NBFCs shall be compliant with the prevailing guidelines/regulations issued by RBI.

 

 

Ceilings of Dividend Payout Ratio:

Type of NBFCs	Maximum Dividend payout  ratio (in percentage)
NBFCs that do not accept public deposits and do not have customer interface	No ceiling specified
Core Investment Company	60
Standalone Primary Dealers	60
Other NBFCs	50

 

A NBFC (other than SPD) which does not meet the above minimum requirements for dividend declaration in each of the preceeding three Financial Years, may be eligible to declare dividend subject to a cap of 10% on the dividend payout ratio only after fulfilment of following conditions:

·         Has net NPA of less than 4% as the close of Financial year.

·         Meets the capital adequacy requirements in the Financial Year for which it proposes to pay dividend.

 As per  Master Direction-Standalone Primary Dealers (Reserve Bank),Directions,2016,in case of any SPD which have  CRAR at or above the minimum requirements of 15% during each of the quarters of previous years, but lower than 20% in any of those quarters,the dividend payout ratio shall not exceed 33.3%.

 

Reporting Requirements:

NBFC-D,NBFC-ND-SI,HFC and CIC are the following forms which shall contain the details of dividend declared during the Financial Year as per the format prescribed in Annexure 2.The report shall be furnished within fortnight after declaration of dividend to the Regional Office of Department of Supervisions of Reserve Bank/Department of Supervisions of NHB,under whose jurisdiction it is registered.

Reference: rbi.org.in