The Reserve Bank of India (RBI) on Wednesday released the draft circular on declaration of dividend by non-banking financial companies (NBFCs). The central bank has sought comments from such companies, industry participants and other interested parties by December 24, 2020. As per the draft circular, deposit taking NBFCs and systemically important non-deposit taking NBFCs should have Capital to Risk (Weighted) Assets Ratio (CRAR) of at least 15 per cent for last three years, including the accounting year for which it proposes to declare dividend.
For non-systemically important non-deposit taking non-banking financial company (NBFC-ND), the leverage ratio should be less than 7 for the last 3 years, including the accounting year for which it proposes to declare dividend, the RBI said in the draft circular.
Besides, a core investment company (CIC) needs to have adjusted net worth (ANW) of at least 30 per cent of its aggregate risk weighted assets on balance sheet and risk adjusted value of off -balance sheet items for last 3 years, including the accounting year for which it proposes to declare dividend.
Above all, the net non-performing asset (NPA) ratio of the NBFCs should be less than 6 per cent in each of the last three years, including the accounting year for which it proposes to declare dividend.
"The above guidelines will be applicable for dividend to be declared for the financial year beginning April 01, 2020 (FY21) onwards," the central bank said.
The central bank said that the proposed dividend should be payable only out of the current year's profit. Besides, the board of the NBFC should also take into account the interests of all stakeholders and the above guidelines while deciding on the proposals for declaring dividend, it added.
The apex bank also urged NBFCs to consider other aspects, such as long-term growth plans, the supervisory findings of the RBI with regard to divergence in identification of NPAs and shortfall in provisioning as well as the auditors' qualifications pertaining to the statement of accounts, while taking dividend decisions.
As of now, unlike banks, there are no regulations in place with regard to dividend declarations by NBFCs. In wake of the economic shock caused by the COVID-19 pandemic, the RBI on December 4 asked scheduled commercial banks and co-operative banks not to disburse any dividends for the financial year ended March 2020.
In April, RBI had announced banks shall not make any dividend payouts from profits pertaining to the financial year ended March 31, 2020, until further instructions, which shall be reassessed based on financial results of banks for the quarter ending September 30, 2020.