The Reserve Bank of India has released draft guidelines that propose, among other things, minimum financial benchmarks for non-bank lenders seeking to declare dividends.
The benchmarks will change depending on the type of non-bank finance company. According to the draft released on Wednesday:
Deposit-taking and systemically important non-deposit taking NBFCs seeking to declare dividends must have at least 15% capital adequacy ratio in the preceding three years, including the year of dividend announcement.
Non-systemically important non-deposit taking NBFCs must have a leverage ratio below 7 in the preceding three years including the year of the announcement.
Core investment companies must have adjusted net worth of at least 30% of their aggregate risk-weighted assets on balance sheet and risk adjusted value of off-balance sheet items for the preceding three years, including the year of the dividend announcement
All NBFCs must have a net non-performing asset ratio of below 6% for the preceding three years, including the year of the dividend announcement.
The regulator also proposed to set up a matrix for calculation of the extent of dividends payable by NBFCs, depending on their size and nature.
Subject to meeting the minimum regulatory requirement, the dividend payout will be calculated based on the lowest capital adequacy ratio for an NBFC and the lowest net worth for a core investment company in the preceding three years. The dividend payout ratio shall be calculated as a percentage of dividend payable in a year to net profit in that year.
The boards of NBFCs must consider the following three factors before announcing dividends during a year:
The supervisory findings of the Reserve Bank on divergence in identification of NPAs and shortfall in provisioning.
The auditors’ qualifications pertaining to the statement of accounts.
The NBFC’s long-term growth plans.
The regulator has sough public comments by Dec. 24. If approved, these guidelines would be applicable for the current financial year ending March 2021.