{"id":6667,"date":"2021-07-05T10:01:48","date_gmt":"2021-07-05T10:01:48","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=6667"},"modified":"2021-07-05T10:03:04","modified_gmt":"2021-07-05T10:03:04","slug":"rbi-states-maximum-dividend-payout-ratio-for-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/","title":{"rendered":"The RBI States Maximum Dividend Payout Ratio for NBFCs &#8211; An Overview"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The RBI (Reserve Bank of India) released guidelines that state the criteria for NBFCs to declare dividends. The RBI (Reserve Bank of India) claimed that the new rules are framed with an outlook to impart better consistency and transparency in practice.&nbsp; In this blog, we shall discuss the significant details of the notification released by the Reserve Bank of India on the maximum dividend payout ratio for NBFCs (Non-Banking Financial Companies).<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3aa757243ea\" class=\"ez-toc-cssicon-toggle-label\"><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><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3aa757243ea\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/#Fundamentals_While_Assessing_an_Offer_for_Dividend_announcements\" title=\"Fundamentals\nWhile Assessing an Offer for Dividend announcements\">Fundamentals\nWhile Assessing an Offer for Dividend announcements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/#Eligibility_Criteria_for_Dividend_Payment_Maximum_Dividend_Payout_Ratio_for_NBFCs\" title=\"Eligibility Criteria for Dividend Payment: Maximum Dividend Payout Ratio for NBFCs\">Eligibility Criteria for Dividend Payment: Maximum Dividend Payout Ratio for NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/#Maximum_Dividend_Payout_Ratio_for_Non-Banking_Financial_Companies_Quantum_for_Dividend_Payable\" title=\"Maximum\nDividend Payout Ratio for Non-Banking Financial Companies: Quantum for Dividend\nPayable\">Maximum\nDividend Payout Ratio for Non-Banking Financial Companies: Quantum for Dividend\nPayable<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/#What_is_the_Purpose_of_the_RBI_Guidelines\" title=\"What is\nthe Purpose of the RBI Guidelines?\">What is\nthe Purpose of the RBI Guidelines?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Fundamentals_While_Assessing_an_Offer_for_Dividend_announcements\"><\/span>Fundamentals\nWhile Assessing an Offer for Dividend announcements<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nBODs (Board of Directors) of such firms are needed to make sure that they\nconsider the following while assessing the offer for dividend announcements:<\/p>\n\n\n\n<ol><li>National Housing Bank and RBI\u2019s\nsupervisory findings on divergence in categorisation and provisioning for NPA\n(Non-Performing Assets);<\/li><li>Long-term development plan of\nNBFCs;<\/li><li>Qualifications in the report of\nthe auditor to financial statements.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligibility_Criteria_for_Dividend_Payment_Maximum_Dividend_Payout_Ratio_for_NBFCs\"><\/span>Eligibility Criteria for Dividend Payment: Maximum Dividend Payout Ratio for NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Non-Banking Financial Companies (<strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFCs<\/a><\/strong>) and <strong><a href=\"https:\/\/swaritadvisors.com\/housing-finance-company-registration\" class=\"text-primary\">Housing Finance Companies<\/a><\/strong> (HFCs) are also required to execute specific benchmarks to meet the criteria for a dividend payment. The standards comprise the following criteria:<\/p>\n\n\n\n<ol><li>Total Non-Performing Asset\nRatio is less than 6% of the past three years, consisting of the year when the\ndividend is announced;<\/li><li>Minimum capital requirements\nare fulfilled for the previous three financial years;<\/li><li>No explicit limitations from\nthe Reserve Bank of India or National Housing Bank on announcing dividends.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Maximum_Dividend_Payout_Ratio_for_Non-Banking_Financial_Companies_Quantum_for_Dividend_Payable\"><\/span>Maximum\nDividend Payout Ratio for Non-Banking Financial Companies: Quantum for Dividend\nPayable<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nRBI (Reserve Bank of India) also declared a top limit for dividend payout\nratios. This ratio means the ratio between the total dividend payable and the total\nprofit for a financial year. The upper limit for the dividend payout ratio\ndeclared by the Reserve Bank of India is mentioned in the table below:<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  <strong>Types\n  of NBFCs<\/strong>\n  <\/td><td>\n  <strong>%\n  of Maximum Dividend Payout Ratio<\/strong>\n  <\/td><\/tr><tr><td>\n  Non-Banking Financial\n  Companies that don\u2019t accept any public funds and not having any client\n  interface.\n  <\/td><td>\n  No Upper Limit\n  <\/td><\/tr><tr><td>\n  Standalone Primary Dealers\n  <\/td><td>\n  60%\n  <\/td><\/tr><tr><td>\n  Core Investment Companies\n  <\/td><td>\n  60%\n  <\/td><\/tr><tr><td>\n  Other Non-Banking Financial\n  Companies\n  <\/td><td>\n  50%\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<ul><li>Non-Banking Financial Companies\nthat don\u2019t accept any public funds and not having any client interface, no\nMaximum Dividend Payout Ratio (Ceiling) has prescribed;<\/li><li>In the case of other\nNon-Banking Financial Companies, the dividend payout ratio is completed at 50%;<\/li><li>The maximum Dividend Payout\nRatio for CIC (Core Investment Companies) and unconnected with primary dealers\nis set at 60%.<\/li><\/ul>\n\n\n\n<p>It\nis worth introducing here that the regulator described that the total dividend\npayable must comprise payments on equity shares and those on obligatory\nconvertible preference shares eligible for inclusion in Tier 1 capital.<\/p>\n\n\n\n<p>NBFCs\nthat didn&#8217;t fulfil the minimum financial standards mentioned above can be\nqualified to announce a dividend, subject to a cap of 10% on the dividend\npayout ratio if they fulfil the condition as mentioned below:<\/p>\n\n\n\n<ul><li>Fulfils applicable capital\nsufficiency necessity for the year where they propose to declare the dividend;<\/li><li>Has the total Non-Performing\nAsset ratio less than 4% at the end of the Financial Year.<\/li><\/ul>\n\n\n\n<p>The\nReserve Bank of India mentioned that in the case of separate primary dealers\nwhich have the Capital Adequacy Ratio of 15% (Regulatory Minimum) or above at\nthe time3 of each of the quarters of the last year, but less than 20% in any of\nthose quarters, the dividend payout ratio cannot exceed 33.3%.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Purpose_of_the_RBI_Guidelines\"><\/span>What is\nthe Purpose of the RBI Guidelines?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Reserve Bank of India set the Maximum Dividend Payout Ratio as a part of <strong>RBI guidelines<\/strong><sup><a href=\"https:\/\/www.rbi.org.in\/Scripts\/NotificationUser.aspx?Id=12118&amp;Mode=0\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> on the dispensation of dividends by NBFCs (Non-Banking Financial Companies). As per the RBI (Reserve Bank of India), the guidelines are focused on covering infusing greater transparency and consistency in the payout practice and will be helpful for the declaration of dividends from the financial year ending 31<sup>st<\/sup> March 2022.<\/p>\n\n\n\n<p>Such\nguidelines of the Reserve Bank of India were proposed 1<sup>st<\/sup> by the\nReserve Bank of India (RBI) in the form of a draft circular in the December\nmonth previous year and came after the Reserve Bank of India governor\nShaktikanta Das on 4<sup>th<\/sup> December mentioned that the growing\nimportance of Non-Banking Financial Companies and their inter-linkages with\ndifferent areas in the financial system. The governor of the RBI (Reserve Bank\nof India) had said that it made essential to boost the flexibility of the\nsector.<\/p>\n\n\n\n<p>The\ngovernor has said that it had been decided to put in place transparent criteria\naccording to the matrix of parameters for the declaration of dividends by\nvarious categories of NBFCs.<\/p>\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>The strengthening in dividend payout rules comes with a few weeks of the norms of the Reserve Bank of India on auditor appointments. Non-Banking Financial Companies are against the progress of auditor appointments, but the Reserve Bank of India has remained adamant. For a good understanding, you may also refer to the notification of the Reserve Bank of India on Maximum Dividend Payout Ratio for Non-Banking Financial Companies attached with this blog. <\/p>\n\n\n<a href=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/07\/NBFCS2A8A6D0DFCD346B7BA78285EE25759A6-1.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">NBFCS2A8A6D0DFCD346B7BA78285EE25759A6-1<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI (Reserve Bank of India) released guidelines that state the criteria for NBFCs to declare dividends. The RBI (Reserve Bank of India) claimed that the new rules are framed with an outlook to impart better consistency and transparency in practice.&nbsp; In this blog, we shall discuss the significant details of the notification released by [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":6668,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58,56],"tags":[735],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/6667"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=6667"}],"version-history":[{"count":6,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/6667\/revisions"}],"predecessor-version":[{"id":6675,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/6667\/revisions\/6675"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/6668"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=6667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=6667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=6667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}