The Reserve Bank of India (RBI) on Thursday put in place certain conditions for non-banking financial companies (NBFCs) to pay dividends to shareholders from the financial year ending 31 March 2022.
The regulator said the conditions are specific to different categories of NBFCs, which will have to meet minimum capital adequacy ratios, net non-performing asset (NPA) ratios, and a few other criteria to be able to declare dividend. RBI said a non-bank financier must report a net NPA ratio of less than 6% in each of the last three years, including as at the close of the financial year for which dividend is proposed.
The board of directors (BoD), RBI said, while considering the proposals for dividend shall take into account supervisory findings of the regulator on divergence in classification and provisioning for bad loans.
It should also look at qualifications in the auditors’ report to the financial statements and long-term growth plans of the NBFC. “The board shall ensure that the total dividend proposed for the financial year does not exceed the ceilings specified in these guidelines,” it said.
RBI also specified the dividend payout ratios for various categories of non-banks. This is the ratio between the amount of dividend payable in a year and the net profit according to the audited financial statements for the financial year.
In case the net profit for the relevant period includes any extraordinary income or the financial statements are qualified by the statutory auditor that indicates an overstatement of net profit, that amount should be deducted from the net profit while determining the dividend payout ratio.
For non-bank financiers that do not accept public funds and do not have any customer interface, there is no ceiling on dividend payout ratio. Core investment companies and standalone primary dealers cay pay up to 60% of the income, while all other NBFCs can pay up to 50%.
NBFCs shall report details within a fortnight after declaration of dividend to the regional office of the department of supervision of RBI or the department of supervision of the National Housing Bank (NHB), under whose jurisdiction it is registered, it said.
These regulations were first proposed by RBI in the form of a draft circular in December last year and came after the RBI governor Shaktikanta Das on 4 December pointed out the growing significance of NBFCs and their interlinkages with different segments in the financial system. This made it imperative to enhance the resilience of the sector, the RBI governor had said.
“Therefore, it has been decided to put in place transparent criteria according to a matrix of parameters for declaration of dividends by different categories of NBFCs,” he had said.
RBI specified different capital adequacy norms for different categories of non-banks. Deposit taking and systemically important NBFCs will need to maintain a minimum capital ratio consisting of tier I and tier II capital of not less than 15% of its aggregate risk-weighted assets.
The adjusted net worth of a core investment company (CIC) should not be less than 30% of its aggregate risk-weighted assets, the guidelines said. For housing finance companies the capital ratio should be a minimum of 13% as on 31 March 2020 and would increase by 1 percentage point each in FY21 and FY22.
Never miss a story! Stay connected and informed with Mint.
our App Now!!