RBI released New Dividend Payment Norms for NBFCs

Current Context: The Reserve Bank of India issued guidelines on the distribution of dividends by Non-Banking Financial Companies (NBFCs).

The guidelines for the same were issued to have transparency and uniformity in the practice.
The guidelines will be effective for the declaration of dividend from the profits of the financial year ending March 31, 2022, and onwards.
The guidelines will be applicable to all the NBFCs which are under RBI.
As per the minimum prudential requirements prescribed for declaration of dividend, the net NPA ratio of the NBFC concerned will be less than 6% in each of the last three years, including as at the close of the financial year for which the dividend is proposed to be declared.
The NBFC should fulfil the regulatory capital requirement for each of the last three financial years, including the financial year for which the dividend is proposed.
For the core investment company which supposes an NBFC, the maximum dividend payout ratio will be 60%. It will be 50% for other NBFCs. 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.
And the proposed dividend will be the inclusion of both dividend on equity shares and compulsorily convertible preference shares eligible for inclusion in Tier 1 capital.
The NBFCs are supposed to give a detailed report for dividend declared during the financial year to the RBI.
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