Under the new rules of RBI, now non-banking financial companies (NBFCs) will also be able to get the benefit of dividend pay-out. This rule will be applicable from the financial year 2022.
Reserve Bank of India
In order to increase transparency in the financial position of financial companies, the Reserve Bank of India (RBI) has decided to link dividend payment with balance sheet parameters. Under this, now the boards of non-banking financial companies (NBFCs) will have to note down the details in the accounts before approving the dividend under the rules of RBI under supervision. The new dividend distribution norms set by the regulator will be applicable to all finance companies including major investment companies. With this, NBFCs will get the benefit of dividend pay-out. In this, you can take advantage of 50% maximum dividend payout. Whereas higher payout of 60% has been allowed for core investment companies and primary dealership firms.
This rule will be applicable from the financial year 2022. As of now NBFCs do not keep any dividend cap. It does not accept public funds and has no client interface. However, all finance companies will have to comply with the RBI norms regarding the maintenance of reserve funds.
NBFCs have to meet the prescribed regulatory capital requirement for each of the last three financial years in order to pay dividend under the balance sheet threshold. Also, the NPA ratio has to be kept less than 6% in each of the last three years in which dividend can be declared at the end of the financial year.
The revised norms will be applicable for equity shares as well as dividend on convertible capital. If there is an overstatement of net profit for a particular period, the overstatement limit should be reduced before computing the payout ratio.
The revised and final guidelines have simplified the process of dividend payment as compared to earlier. Manushree Sagar, VP and Sector Head, ICRA says, “In the last three years, the dividend payout ratio for most entities has been 10-20%, with some as high as 20-30%.”
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