RBI Stipulated Guidelines For NBFCs While Declaring Dividends

The Reserve Bank of India has stipulated a set of guidelines for NBFCs before they declare dividends.

According to a RBI release, the Board of Directors shall, while considering the proposals for dividend, take into account the following aspects: (a) Supervisory findings of the Reserve Bank (National Housing Bank (NHB) for HFCs) on divergence in classification and provisioning for Non-Performing Assets (NPAs). (b) Qualifications in the Auditors' Report to the financial statements; and (c) 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. Eligibility criteria 5. NBFCs shall comply with the following minimum prudential requirements to be eligible to declare dividend.

There are other guidelines also that are stipulated including NPAs and capital adequacy requirements.

NBFCs eligible to declare dividend may pay dividend, subject to the following: (a) The Dividend Payout Ratio is the ratio between the amount of the dividend payable in a year and the net profit as per the audited financial statements for the financial year for which the dividend is proposed. (b) Proposed dividend shall include both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 Capital. (c) In case the net profit for the relevant period includes any exceptional and/or extraordinary profits/ income or the financial statements are qualified (including 'emphasis of matter') by the statutory auditor that indicates an overstatement of net profit, the same shall be reduced from net profits while determining the Dividend Payout Ratio.