RBI: New Dividend Payout norms for NBFCs

June 26, 2021

Reserve Bank of India (RBI) has decided to prescribe guidelines on distribution of dividend by NBFCs in order to induce a greater transparency and uniformity in practice.

Highlights

Guidelines will be effective for the declaration of dividend from profit for financial year 2021-2022 and onwards.
Board of directors will consider the proposals for dividend.
They will take into account the supervisory findings of Reserve Bank (National Housing Bank for HFCs) on divergence in classification and provisioning of non-performing assets (NPAs).
Board will also ensure that total dividend proposed for financial year does not exceed ceilings as specified in these guidelines.
As per circular, RBI will not entertain any request for ad-hoc dispensation on declaration of dividend.

How can NBFCs comply with guidelines?

As per guidelines, NBFCs will need to comply with minimum prudential requirements to be eligible to announce dividend.
One of the eligibility criteria is, net NPA ratio should be less than 6% in each of last three years as well as at the close of financial year for which dividend is being proposed.
For NBFCs, that do not accept public funds & do not have any customer interface, no specific ceilings on dividend payout have been set.
Maximum dividend payout ratio for core investment companies has been set at 60%, standalone primary dealers at 60% and for other NBFCs at 50%.

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