The Reserve Bank of India (RBI)  issued guidelines on the distribution of dividends by non-banking financial companies (NBFCs) in order to infuse greater transparency and uniformity in the practice.

 The guidelines shall be effective for declaration of dividend from the profits of the financial year ending March 31, 2022 and onwards. These will be applicable to NFBCs regulated by the RBI. As per the minimum prudential requirements prescribed for declaration of dividend, the net NPA ratio of the NBFC concerned shall be less than 6 percent in each of the last three years, including as at the close of the financial year for which the dividend is proposed to be declared.

Also, NBFCs (other than Standalone Primary Dealers) should have met the applicable regulatory capital requirement for each of the last three financial years, including the financial year for which the dividend is proposed. The guidelines also prescribe ceilings on dividend payout ratios for NBFCs. For an NBFC which is a core investment company, the maximum dividend payout ratio could be 60 percent and 50 percent for other NBFCs. However, there is no ceiling specified for NBFCs that do not accept public funds and do not have any customer interface.

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