Active Stocks
Thu Apr 18 2024 13:25:25
  1. Tata Steel share price
  2. 163.20 1.97%
  1. Power Grid Corporation Of India share price
  2. 282.15 2.84%
  1. Infosys share price
  2. 1,427.90 0.93%
  1. NTPC share price
  2. 357.95 -0.36%
  1. State Bank Of India share price
  2. 755.80 0.52%
Business News/ Industry / Banking/  RBI proposes criteria for NBFCs’ dividend payouts

RBI proposes criteria for NBFCs’ dividend payouts

Proposals were released as a draft circular, with comments sought till 24 December

The central bank said a copy of the guidelines may be placed before an NBFC’s board at its next meeting. MINTPremium
The central bank said a copy of the guidelines may be placed before an NBFC’s board at its next meeting. MINT

The Reserve Bank of India (RBI) on Wednesday proposed certain conditions for allowing non-banking financial companies (NBFCs) to pay dividend to shareholders.

RBI said the conditions are specific to different categories of NBFCs and they will have to meet minimum capital adequacy ratios, leverage ratios and lower thresholds for adjusted net worth to “infuse greater transparency and uniformity in practice". The proposals were released in the form of a draft circular, and comments were sought by 24 December.

Also read: The pandemic push to the silver economy

“The above guidelines will be applicable for dividend to be declared for the financial year beginning 1 April 2020 (FY21) onwards," it added.

For instance, a deposit-taking NBFC and systemically important non-deposit-taking NBFC should have a capital adequacy ratio of at least 15% for the last three years, including the accounting year for which it proposes to declare dividend.

RBI said non-systemically important, non-deposit-taking NBFC should have leverage ratio of below 7% for the last three years, and a core investment company (CIC) should have adjusted net worth of at least 30% of its aggregate risk-weighted assets on its balance sheet and risk adjusted value on off-balance sheet items for the last three years.

That apart, the net bad loan ratio should be less than 6% in each of the last three years for them to pay dividend. However, if the capital adequacy, leverage or net worth norms were not met in the last two years, non-banks would still be able to pay some dividend provided their net bad loan ratio is less than 4% for the accounting year.

Moreover, financial statements pertaining to the year for which the NBFC is declaring dividend should be free of any qualification by the auditors, which may have an adverse bearing on the profit during the year, RBI said.

“In case of any qualification to that effect, the net profit should be suitably adjusted while computing the dividend pay-out ratio."

The central bank said a copy of the guidelines may be placed before an NBFC’s board at its next meeting. The board should then take into account the interests of all stakeholders and aspects, such as supervisory findings of RBI with regard to divergence of NPAs and shortfall in provisioning, among others, while deciding on dividend payout.

On 4 December, governor Shaktikanta Das said that the growing significance of NBFCs and their interlinkages with different segments in the financial system has made it imperative to enhance the resilience of the sector.

“Therefore, it has been decided to put in place transparent criteria as per a matrix of parameters for declaration of dividends by different categories of NBFCs," said Das.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 10 Dec 2020, 08:48 AM IST
Next Story footLogo
Recommended For You
Banking Stocks
Switch to the Mint app for fast and personalized news - Get App