What changed
RBI introduced a comprehensive framework for NBFC dividend declarations, replacing ad-hoc practices. The guidelines set eligibility criteria including capital adequacy and net NPA thresholds (less than 6% for three years), and impose maximum dividend payout ratios (e.g., 50% for other NBFCs, 60% for CICs and SPDs). Board oversight is mandated to consider supervisory findings and auditor qualifications.
What it means for you
NBFCs must now ensure strict compliance with prudential norms before declaring dividends, limiting payouts to protect financial health. This enhances transparency and aligns dividend decisions with regulatory compliance, potentially reducing dividend amounts for some NBFCs. Lenders should review their capital and asset quality positions to avoid restrictions.
What you must do
- Verify your NBFC meets the minimum capital adequacy requirement for each of the last three financial years.
- Ensure net NPA ratio is below 6% for the last three years including the current year.
- Check for any supervisory findings or auditor qualifications that may impact dividend eligibility.
- Calculate dividend payout ratio within the specified ceiling (e.g., 50% for most NBFCs) after adjusting exceptional profits.
- Document board oversight and compliance with all RBI regulations before declaring dividends.
Who it affects
All Non-Banking Financial Companies (NBFCs) regulated by RBI, including Housing Finance Companies (HFCs), Core Investment Companies (CICs), Standalone Primary Dealers (SPDs), and others
What is the effective date for these dividend guidelines?
The guidelines apply to dividends declared from profits of the financial year ending March 31, 2022, and onwards.
What is the maximum dividend payout ratio for most NBFCs?
For NBFCs other than those without public funds/customer interface, CICs, and SPDs, the maximum payout ratio is 50% of net profit.
Can an NBFC request RBI for an ad-hoc dividend dispensation?
No, the circular explicitly states that RBI will not entertain any request for ad-hoc dispensation on dividend declaration.