RBI releases draft Circular on declaration of Dividends by NBFCs, proposes 15% CRAR, under 6% NPAs for Dividend declaration

By T. moharana On Dec 9, 2020

Mumbai: The Reserve Bank of India on Wednesday declared draft circular on declaration of dividends by Non-Banking Financial companies (NBFCs). NBFCs, industry participants and other interested parties can sent their comments on the draft by 24^th of this month.

Eligibility criteria for declaration of dividend

Only those NBFCs, which comply with the following minimum prudential requirements, would be eligible to declare dividend:

i) Capital Adequacy and Leverage: NBFCs should comply with the prescribed minimum capital adequacy and leverage ratio as under:

Deposit taking Non-Banking Financial Company (NBFC-D) and Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND-SI) should have CRAR of at least 15% for last 3 years, including the accounting year for which it proposes to declare dividend.

Non-Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND) should have leverage ratio of less than 7 for the last 3 years, including the accounting year for which it proposes to declare dividend.

Core Investment Company (CIC) should have Adjusted Net Worth (ANW) of at least 30% 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.

ii) Non-Performing Assets (NPA)

The net NPA ratio should be less than 6% in each of the last three years, including the accounting year for which it proposes to declare dividend.

iii) Other Criteria

NBFCs should comply with the provisions of Section 45 IC of the RBI Act, 1934.

NBFCs should comply with the prevailing regulations/ guideline issued by RBI.

The proposed dividend should be payable only out of the current year’s profit.

The Reserve Bank should not have placed any explicit restrictions on the NBFC on declaration of dividend.

The detailed guidelines for declaration of dividends by NBFCs can be found here.