{"id":7311,"date":"2021-08-04T06:05:22","date_gmt":"2021-08-04T06:05:22","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=7311"},"modified":"2021-08-04T06:24:02","modified_gmt":"2021-08-04T06:24:02","slug":"nbfcs-dividend-distribution-guidelines","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/nbfcs-dividend-distribution-guidelines\/","title":{"rendered":"RBI Presents NBFCs Dividend Distribution Guidelines"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The RBI (Reserve Bank of India) issued guidelines on NBFCs Dividend Distribution to introduce greater consistency and transparency in practice. The guidelines shall be successful for declaration of dividend from the profits of the F.Y. (Financial Year) ending March 31, 2022, &amp; onwards. These will be relevant to <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFCs<\/a><\/strong> governed by the Reserve Bank of India. <\/p>\n\n\n\n<p>The\nnew NBFCs Dividend Distribution policies shall be applied to the following\nNon-Banking Financial Companies (NBFCs):<\/p>\n\n\n\n<ol><li>NBFC-Systematically Important\nNon-Deposit taking company &amp; deposit-taking company (RBI) Directions, 2016;<\/li><li>NBFC Non-Systematically\nImportant Non-Deposit taking Company (RBI Directions, 2016.<\/li><\/ol>\n\n\n\n<p>The\nboards&#8217; members are responsible for taking the following factors into account\nbefore considering the suggestions for dividend distribution for NBFCs<\/p>\n\n\n\n<ul><li>Monitoring findings the Reserve\nBank of India (Housing Financial Companies &amp; National Housing Bank) on\ndifferences in categorisation and provisioning for Non-Performing Assets (NPAs);<\/li><li>Long-term development proposal\nof the NBFC;<\/li><li>Qualification is mentioned in\nthe report of auditors to the financial statements.<\/li><\/ul>\n\n\n\n<p>The\nReserve Bank of India also orders NBFCs to make sure 100% obedience to the stated\nhigher limit during the overall dividend amount for the financial year into\nconsideration.<\/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-6a550b26bbb46\" 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-6a550b26bbb46\"  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\/nbfcs-dividend-distribution-guidelines\/#What_are_the_Criteria_Fulfilled_by_NBFC_for_Dividend_Declaration\" title=\"What are the Criteria Fulfilled by NBFC for Dividend Declaration? \">What are the Criteria Fulfilled by NBFC for Dividend Declaration? <\/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\/nbfcs-dividend-distribution-guidelines\/#How_much_can_NBFCs_pay_as_a_Dividend_Distribution_in_the_purview_of_the_New_Policies_of_RBI\" title=\"How much can NBFCs pay as a Dividend Distribution in the purview of the New Policies of RBI?\">How much can NBFCs pay as a Dividend Distribution in the purview of the New Policies of RBI?<\/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\/nbfcs-dividend-distribution-guidelines\/#Guidelines_Concerning_Reporting_System_for_Dividend_Distribution\" title=\"Guidelines Concerning Reporting System for Dividend Distribution\">Guidelines Concerning 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:\/\/swaritadvisors.com\/blog\/nbfcs-dividend-distribution-guidelines\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Criteria_Fulfilled_by_NBFC_for_Dividend_Declaration\"><\/span>What are the Criteria Fulfilled by NBFC for Dividend Declaration? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As\nper the Reserve Bank of India, before stating a dividend, Non-Banking Financial\nCompanies must ensure consistency with given minimum prudential requirements.<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  <strong>Factors<\/strong>\n  <\/td><td>\n  <strong>Necessity<\/strong>\n  <\/td><\/tr><tr><td>\n  <strong>Total\n  NPA (Non-Performing Asset)<\/strong>\n  <\/td><td>   The total NPA ratio should not be less than 6% in each of the least F.Y, comprising the closure of the Financial   Year for which dividend is proposed.   <\/td><\/tr><tr><td>\n  <strong>Capital\n  Adequacy <\/strong>\n  <\/td><td>   NBFCs (excluding Standalone   Primary Dealers) should fulfil the relevant regulatory capital requirements for the preceding three years, comprising the year for which the dividend is suggested. Standalone Primary Dealers are required to sustain a minimum Capital Adequacy Ratio (CRAR) of 20% for the F.Y (for all quarters) for which a dividend is suggested.      <\/td><\/tr><tr><td>\n  <strong>Other\n  Criteria<\/strong>\n  <\/td><td>   Non-Banking Financial Companies should remain to present rules announced by the Reserve Bank of   India. The Reserve Bank or the National Housing Bank shall not have required any limitations on dividend declaration. Non-Banking Financial   Companies must make sure conformity with the provisions of <strong><em>Section<\/em><\/strong>   <strong><em>45   IC of the RBI Act, 1934<\/em><\/strong>. <strong><a href=\"https:\/\/swaritadvisors.com\/housing-finance-company-registration\" class=\"text-primary\">HFCs<\/a><\/strong> shall hold the provisions of <strong><em>Section   29C of the National Housing Bank Act, 1987<\/em><\/strong>.      <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_much_can_NBFCs_pay_as_a_Dividend_Distribution_in_the_purview_of_the_New_Policies_of_RBI\"><\/span>How much can NBFCs pay as a Dividend Distribution in the purview of the New Policies of RBI?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nqualified NBFCs are alleged to pay out dividends in the purview of the following\nconditions for dividend declaration appointed by the RBI.<\/p>\n\n\n\n<ul><li>The suggested dividend should involve both dividends on equity shares and CCPS (Compulsorily Convertible Preference Shares) entitled for the inclusion in Tier 1 Capital;<\/li><li>The dividend payout ratio is the same as the ratio between the amount dividend payable in a year &amp; the net profit as per the audited balance sheet for the financial year for which the dividend is suggested;<\/li><li>On the occasion, the net profit for granted period involves any exceptional income, or the financial statements are authenticated by the auditor that shows an overstatement of net profit, the same should be deducted from the net profits which estimating the <strong><em>DPR (Dividend Payout Ratio);<\/em><\/strong><\/li><li>The eligible Non-Banking Financial Companies should adhere to the following upper limit for Dividend Payout Ratios:<\/li><\/ul>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  <strong>Ceilings\n  Concerning the Dividend Payout Ratio<\/strong>\n  <\/td><\/tr><tr><td>\n  <strong>NBFC\n  Categorisation<\/strong>\n  <\/td><td>\n  <strong>Maximum\n  DPR (%)<\/strong>\n  <\/td><\/tr><tr><td>\n  NBFCs Non-Deposit Taking\n  having no client interface\n  <\/td><td>\n  &#8211;\n  <\/td><\/tr><tr><td>\n  CICs (Core Investment\n  Company)\n  <\/td><td>\n  60\n  <\/td><\/tr><tr><td>\n  SPDs (Standalone Primary\n  Dealers)\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>A Non-Banking Financial Company (excluding SPD) which didn&#8217;t comply with the relevant prudential requisites mentioned above for each of the last three financial years, may declare a dividend, subject to a limit of 10% on the Payout Ration if they adhere to given situations:<ol><li>Meets the relevant CRAR limit in the Financial Year for which it suggests paying out the dividend;<\/li><li>Has net Non-Performing Asset less than four and as at the end of the Financial Year.<\/li><\/ol><\/li><li>According to the prevailing rules mentioned above of the <strong>Master Direction &#8211; Standalone Primary Dealers (RBI) Direction, 2016<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/rbi.org.in\/Scripts\/BS_ViewMasDirections.aspx?id=10567#\"><strong>[1]<\/strong><\/a><\/sup>, in the instance of SPDs which have a CRAR equal or more than the regulatory minimum of 15% at the time of each of the quarters of the preceding Financial Year, but less than 20% in any of such quarters, the payout ratio shall not exceed 33.3%.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Guidelines_Concerning_Reporting_System_for_Dividend_Distribution\"><\/span>Guidelines Concerning Reporting System for Dividend Distribution<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>CIC,\nNBFC-D, HFC, and NBFC-ND-SI are required to report the aspects of the dividend\ndeclared at the time of the Financial Year in the format mentioned below. The\nreport should be submitted to the RBI or the Department of Supervision of NHB\nwithin two weeks after the dividend declaration.<\/p>\n\n\n\n<p><strong><em>Details\nof dividends stated during the financial year<\/em><\/strong><\/p>\n\n\n\n<p>Name\nof the NBFC \u2013&nbsp; __________<\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  Accounting Period\n  <\/td><td>\n  Net Profit for Accounting\n  Period (Rs. Crore)\n  <\/td><td>\n  Rate of Dividend (%)\n  <\/td><td>\n  Amount of Dividend (%)\n  <\/td><td>\n  DPR (Dividend Payout Ration\n  (%)\n  <\/td><\/tr><tr><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/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>The decision of the (RBI) Reserve Bank of India to inspire new guidelines is likely to fortify the dividend distribution policies of Non-Banking Financial Companies by imparting developed consistency and transparency. It seems that instructions will make such institutions more credible from the point of view of shareholders and investors. Regardless of fronts, kind reputation &amp; robust footprint, NBFCs often face the warmth from the regulators on different fronts, comprising financial management. The Reserve Bank of Indian as the main regulator, incorporated appropriate amendments every now and then to keep existing 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:\/\/swaritadvisors.com\/blog\/rbi-states-maximum-dividend-payout-ratio-for-nbfcs\/\">The RBI States Maximum Dividend Payout Ratio for NBFCs \u2013 An Overview<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI (Reserve Bank of India) issued guidelines on NBFCs Dividend Distribution to introduce greater consistency and transparency in practice. The guidelines shall be successful for declaration of dividend from the profits of the F.Y. (Financial Year) ending March 31, 2022, &amp; onwards. These will be relevant to NBFCs governed by the Reserve Bank of [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7312,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58,56],"tags":[790],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7311"}],"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=7311"}],"version-history":[{"count":6,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7311\/revisions"}],"predecessor-version":[{"id":7320,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7311\/revisions\/7320"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/7312"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=7311"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=7311"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=7311"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}