RBI: RBI lays down stringent dividend distribution formulae for NBFCs – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-lays-down-stringer-dividend-distribution-formulae-for-nbfcs/articleshow/79646529.cmsSynopsis

RBI said that deposit taking NBFCs and systemically important non-deposit taking NBFCs should have CRAR of at least 15% for the last three years.

Kolkata: The Reserve Bank of India has said that non-banking finance companies (NBFC) with minimum 15% capital adequacy and net non-performing assets (NPA) below 6% for three years will be eligible to declare dividend from this fiscal onwards.

In a graded dividend payout format released on Wednesday, the regulator said that a better managed NBFC with less than 4% net NPA can still become eligible for dividend distribution even if the minimum capital and leverage norms are not met for the previous two years.

These are part of a matrix where capital adequacy, leverage ratio, adjusted net worth and net NPA set the criteria for distributing the earnings with shareholders.

Stronger entities can offer higher but with a cap of 50% of net profit for the accounting year for which the dividend is proposed. The dividend has to be paid only out of the current year’s profit.

“In order to infuse greater transparency and uniformity in practice, it has been decided to prescribe guidelines on distribution of dividend by NBFCs,” RBI said.

RBI said that deposit taking NBFCs and systemically important non-deposit taking NBFCs should have CRAR of at least 15% for the last three years.

Non-systemically non-deposit taking NBFCs should have leverage ratios of less than 7 for the last 3 years, including the accounting year for which it proposes to declare dividend. For core investment companies, the criterion would be to have adjusted net worth of at least 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items for the last three years.

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