RBI caps dividend declaration by NBFCs

| Last updated: 02 July 2021

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The Reserve Bank of India has introduced new guidelines to bring transparency and uniformity to dividend declarations by Non-Banking Finance Companies (NBFCs), effective from the financial year 2021-22. These rules outline specific criteria for the board of directors to consider, eligibility requirements based on capital adequacy and Net NPA ratios, and set maximum dividend payout ratios for different types of NBFCs. Reporting requirements are also detailed, with exceptions for NBFCs not meeting all prudential requirements.

Reserve Bank of India has notified the guidelines on declaration of dividend by Non-Banking Finance Companies (NBFCs) with an objective to infuse transparency and uniformity in the practice of corporates. The said guidelines will be effective from profits of FY 21-22.

The outlined provisions are mentioned hereinbelow-

RBI Dividend Cap for NBFCs: New Guidelines Explained

S.N.	Particulars	Provision
1.	Aspects to be considered by the Board of Directors	Classification and provisioning for NPA Qualifications in the Auditors’ Report to the financial statements Long term growth plan
2.	Eligibility criteria	NBFC (other than Standalone Primary Dealers ) shall meet Capital Adequacy requirements during last 3 financial years including current financial year Net NPA ratio shall be less than 6% during current year and last 3 financial year NBFC shall comply with Section 45IC of RBI Act, 1934 and HFC with section 29 C of the NHB Act, 1987 and prevailing regulations. Standalone Primary Dealers (SPDs) should have maintained a minimum CRAR of 20 per cent for the financial year (all the four quarters) for which dividend is proposed.
3.	Dividend Payout Ratio	Amount of Dividend Net Profit (Extra-ordinary and exceptional profit shall be reduced from the Net profit)
4.	Maximum Dividend Payout Ratio	Non-deposit taking NBFCs (without customer interface)- No Limit Core Investment Company- 60% Other NBFCs- 50%
5.	Reporting	Submission of report within 14 days from the declaration of dividend by- Deposit taking NBFC Non-Deposit Taking Systematically Important NBFC Housing Finance Companies Core Investment Companies
6.	Exception	A NBFC (other than SPD) which does not meet the applicable prudential requirement prescribed in Paragraph (2) above for each of the last three financial years, may be eligible to declare dividend, subject to a cap of 10 percent on the dividend payout ratio, provided the NBFC complies with the following conditions: (a) meets the applicable capital adequacy requirement in the financial year for which it proposes to pay dividend; and (b) has net NPA of less than 4 per cent as at the close of the financial year.