{"id":33172,"date":"2021-07-20T11:28:19","date_gmt":"2021-07-20T05:58:19","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=33172"},"modified":"2021-07-20T11:28:22","modified_gmt":"2021-07-20T05:58:22","slug":"rbi-unveils-dividend-distribution-guidelines-for-nbfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/rbi-unveils-dividend-distribution-guidelines-for-nbfcs\/","title":{"rendered":"RBI Unveils Dividend Distribution Guidelines for NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Reserve Bank of India has introduced new Dividend Distribution policies for NBFCs. The decision aimed to instill improved transparency and uniformity in NBFC\u2019s practice. <\/p>\n\n\n\n<p>The\nnew dividend distribution policies shall apply to the following NBFCs<\/p>\n\n\n\n<ul><li>NBFC-Systemically Important Non-Deposit taking entity\nand deposit-taking entity (RBI) directions, 2016<\/li><li>NBFC-Non- Systemically Important Non-Deposit taking entity\n(RBI) directions, 2016<\/li><\/ul>\n\n\n\n<p>The\npolicies shall come to effect from the profits of the fiscal year ending 31<sup>st<\/sup>\nMarch 2022 and onwards. <\/p>\n\n\n\n<p>The members\nof the boards are accountable to take the following aspects into account before\nconsidering the proposals for dividends. <\/p>\n\n\n\n<ul><li>Supervisory findings of the RBI (National housing Bank and Housing\nFinancial companies) on disparities in provisioning and classification for NPAs\n<\/li><li>Qualifications cited in the Auditors\u2019\nReport to the financial statements; &amp; <\/li><li>Long term development blueprint of the NBFC<\/li><\/ul>\n\n\n\n<p>RBI also mandates <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFCs<\/strong><\/a> to ensure 100% adherence to the specified ceilings limit while taking the total dividend amount for the fiscal year into consideration. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/rbi-unveils-dividend-distribution-guidelines-for-nbfcs\/#Eligibility_criteria_to_be_met_by_NBFC_for_dividend_declaration\" >Eligibility criteria to be met by NBFC for dividend\ndeclaration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/rbi-unveils-dividend-distribution-guidelines-for-nbfcs\/#How_much_amount_NBFCs_can_pay_as_a_dividend_in_light_of_new_RBIs_policies\" >How much amount NBFCs can pay as a dividend in light of new RBI\u2019s policies?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/rbi-unveils-dividend-distribution-guidelines-for-nbfcs\/#Guideline_related_to_Reporting_System_for_dividend_distribution\" >Guideline related to Reporting System for dividend distribution<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/rbi-unveils-dividend-distribution-guidelines-for-nbfcs\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligibility_criteria_to_be_met_by_NBFC_for_dividend_declaration\"><\/span>Eligibility criteria to be met by NBFC for dividend\ndeclaration <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per RBI, NBFCs are supposed to ensure conformity with given minimum prudential prerequisites before declaring a dividend. <\/p>\n\n\n\n<table class=\"table table-bordered\">\n<tbody>\n<tr>\n<td colspan=\"3\">\n<p><strong>&nbsp;<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p><strong>Sl. No.<\/strong><\/p>\n<\/td>\n<td style=\"text-align: center;\">\n<p><strong>Parameter<\/strong><\/p>\n<\/td>\n<td style=\"text-align: center;\">\n<p><strong>Requirement<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>1.<\/p>\n<\/td>\n<td>\n<p>Capital Adequacy<\/p>\n<\/td>\n<td>\n<p>(a)&nbsp;&nbsp; NBFCs (excluding Standalone Primary Dealers, aka SPDs) must satisfy the applicable regulatory capital prerequisites for the preceding three years including the year for which the dividend is proposed.<\/p>\n<p>(b)&nbsp;&nbsp; SPDs are required to maintain a minimum CRAR (Capital Adequacy Ratio) of 20% for the financial year (for all quarters) for which a dividend is proposed.<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>2.<\/p>\n<\/td>\n<td>\n<p>Net NPA<\/p>\n<\/td>\n<td>\n<p>The net NPA ratio must not be less than 6% in each of the last 3 financial years, including as at the closure of the fiscal year for which dividend is proposed.<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>3.<\/p>\n<\/td>\n<td>\n<p>Other criteria<\/p>\n<\/td>\n<td>\n<p>(a)&nbsp;&nbsp; NBFCs shall ensure conformity with the provisions of Section 45 IC of RBI Act, 1934. Housing Finance Companies shall adhere to the provisions of Section 29 C of the NHB Act, 1987. <br \/> <br \/> &nbsp;<\/p>\n<p>(b)&nbsp;&nbsp; NBFCs must adhere to existing norms released by RBI. The RBI or the NHB (for Housing Finance Companies) shall not have imposed any limitations on dividend declaration.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/rbi-to-limit-funding-in-nbfcs-from-non-compliant-financial-action-task-force-nations\/\">RBI to limit funding in NBFCs from Non-compliant Financial Action Task Force Nations <\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_much_amount_NBFCs_can_pay_as_a_dividend_in_light_of_new_RBIs_policies\"><\/span>How much amount NBFCs can pay as a dividend in light of new RBI\u2019s policies? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The Eligible NBFCs are supposed to pay out dividends\nin light of the following conditions for dividend declaration prescribed by the\nReserve Bank of India. <\/em><\/strong><\/p>\n\n\n\n<ul><li>The dividend payout ratio is equivalent to the ratio between the dividend payable amount in a year &amp; the net profit as per the audited balance sheet for the fiscal year for which the dividend is proposed. <\/li><li>The proposed dividend must entail both dividends on equity shares &amp; compulsorily convertible preference shares (CCPS) eligible for inclusion in Tier 1 Capital. <\/li><li>In the event, the net profit for the given period entails any exceptional income or the financial statements are authenticated (inclusive of \u2019emphasis of matter\u2019) by the auditor that manifests an overstatement of net profit, the same must be deducted from the net profits which computing the <strong><em>Dividend Payout Ratio<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Dividend_payout_ratio\"><strong><em>[1]<\/em><\/strong><\/a><\/sup>.<\/li><li>The eligible NBFCs must adhere to the following ceiling limit sets out for dividend payout ratios<\/li><\/ul>\n\n\n\n<table class=\"table table-bordered\">\n<tbody>\n<tr>\n<td colspan=\"3\">\n<p style=\"text-align: center;\"><strong><em>Ceilings related to the Dividend Payout Ratio<\/em><\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"7%\">\n<p><strong>Sl. No.<\/strong><\/p>\n<\/td>\n<td width=\"58%\">\n<p><strong>NBFC Classification <\/strong><\/p>\n<\/td>\n<td width=\"35%\">\n<p><strong>Max. Dividend Payout Ratio (%)<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>1.<\/p>\n<\/td>\n<td>\n<p>NBFCs (non-deposit taking) having no customer interface<\/p>\n<\/td>\n<td>\n<p>&#8211;<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>2.<\/p>\n<\/td>\n<td>\n<p>Standalone Primary Dealers (SPDs)<\/p>\n<\/td>\n<td>\n<p>60<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>3.<\/p>\n<\/td>\n<td>\n<p>Core Investment Company (CICs)<\/p>\n<\/td>\n<td>\n<p>60<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>4.<\/p>\n<\/td>\n<td>\n<p>Other NBFCs<\/p>\n<\/td>\n<td>\n<p>50<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<p>(e)\nRBI shall revoke any request relating to ad-hoc dispensation on dividend\ndeclaration. <\/p>\n\n\n\n<ul><li>A NBFC (excluding SPD) which fails to comply with applicable prudential requisites cited in Para 5 above for each of the preceding 3 fiscal years, may declare a dividend, subject to a cap of 10% on the payout ratio if they adhere to given conditions: <\/li><\/ul>\n\n\n\n<p>(a) Meets the applicable CRAR limit in the financial year for which it proposes to pay out the dividend; and <\/p>\n\n\n\n<p>&nbsp;(b) Has net NPA less than 4&amp; as at the\nending of the financial year. <\/p>\n\n\n\n<ul><li>as per the prevailing norms cited in para 30 of Master Direction- SPDs (RBI) Direction, 2016, in the case of SPDs which have a CRAR equivalent or higher than the regulatory mini. of 15 % during each of the quarters of the preceding financial year, but minimum than 20% in any of those quarters, the payout ratio shall not surpass 33.3%. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Guideline_related_to_Reporting_System_for_dividend_distribution\"><\/span>Guideline related to Reporting System for dividend distribution<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFC-D, NBFC-ND-SI, CIC, and HFC are required to report the details of the dividend declared during the financial year in the format given below, namely Annex 2. The report must be submitted to the Reserve Bank\/ Department of Supervision of NHB within two weeks post declaration of dividend. <\/p>\n\n\n\n<table class=\"table table-bordered\">\n<tbody>\n<tr>\n<td width=\"123\">\n<p><strong><em>accounting Period* <\/em><\/strong><\/p>\n<\/td>\n<td width=\"123\">\n<p><strong><em>Net Profit for the specific&nbsp;<\/em><\/strong><\/p>\n<\/td>\n<td width=\"123\">\n<p><strong><em>Dividend Rate (%)<\/em><\/strong><\/p>\n<\/td>\n<td width=\"123\">\n<p><strong><em>Dividend Amount (INR)<\/em><\/strong><\/p>\n<\/td>\n<td width=\"123\">\n<p><strong><em>Dividend Payout Ratio<\/em><\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;accounting period (INR)<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<td width=\"123\">\n<p>&nbsp;<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>RBI\u2019s decision to inculcate new guidelines is likely to strengthen the dividend distribution policies of NBFCs by imparting improved transparency and uniformity. Also, it seems that these guidelines will make these institutions more credible from investors&#8217; and shareholders \u2018viewpoints. Despite a generous reputation and strong footprint, NBFCs often face the heat from the regulators on various fronts, including financial management. RBI as a primary regulator incorporates relevant amendments every now and then to keep prevailing loopholes out of the equation.  <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/corporate-governance-in-nbfc\/\">Corporate Governance in NBFC- A Detail Overview <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Reserve Bank of India has introduced new Dividend Distribution policies for NBFCs. The decision aimed to instill improved transparency and uniformity in NBFC\u2019s practice. The new dividend distribution policies shall apply to the following NBFCs NBFC-Systemically Important Non-Deposit taking entity and deposit-taking entity (RBI) directions, 2016 NBFC-Non- Systemically Important Non-Deposit taking entity (RBI) directions, 2016 [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":33186,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1870],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3542,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33172"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=33172"}],"version-history":[{"count":14,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33172\/revisions"}],"predecessor-version":[{"id":33190,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33172\/revisions\/33190"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/33186"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=33172"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=33172"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=33172"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}