RBI prescribes eligibility criteria for declaration of dividend by NBFCs

In a bid to ensure financial discipline and transparency, the Reserve Bank of India (RBI) on Tuesday proposed guidelines for non-banking financial companies (NBFCs) for declaring dividends. Under the proposed norms, only those NBFCs that meet the prescribed prudential requirements would be allowed to declare and distribute dividends.

One of the norms prescribed by the RBI is that the net non-performing asset (NPA) ratio of NBFCs should be less than 6 percent in each of the last three years, including the accounting year for which it proposes to declare dividend. "In order to infuse greater transparency and uniformity in practice, it has been decided to prescribe guidelines on the distribution of dividend by NBFCs," said the draft circular on which the RBI has invited comments from the stakeholders by December 24.

On capital adequacy and leverage, the draft said deposit-taking NBFCs and systemically important non-deposit-taking NBFCs should have the capital to risk-weighted assets ratio (CRAR) of at least 15 for the past three years, including the accounting year for which it proposes to declare a dividend. Non-systemically important non-deposit-taking NBFCs should have a leverage ratio of less than seven for the last three 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 percent of its aggregate risk-weighted assets on the balance sheet.

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