New dividend policy not to affect most NBFCs: Report

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December 10, 2020 9:39 PM

The RBI had on October 4 asked banks to not to pay dividend this year given their stretched balance sheets pummelled by the pandemic.

Smaller and mid-sized entities with an AUM of under Rs 20,000 crore expect higher growth rate compared to their larger peers.

The new dividend distribution policy for non-banking lenders is unlikely to impact most of them as their payout ratios have been hovering at 10-20 for the past three years, according to a report.

The Reserve Bank of India on December 9 issued a new draft dividend distribution policy for NBFCs to ensure financial discipline and transparency under which only those NBFCs that meet the prescribed prudential requirements on capital and asset quality will be allowed to pay dividends.

The new payout norms assume importance as unlike banks, currently, there are no guidelines in place concerning the distribution of dividend by NBFCs.

The RBI had on October 4 asked banks to not to pay dividend this year given their stretched balance sheets pummelled by the pandemic.

One of the norms prescribed by the regulator is that their net non-performing asset ratios should be less than 6 per cent in each of the previous three years, including the accounting year for which it proposes to declare dividend. Such companies can declare dividends with a payout ratio of up to 50 per cent or as per the matrix proposed by the RBI that ranges from 15-50 per cent.

“To infuse greater transparency and uniformity in practice, it has been decided to prescribe guidelines on distribution of dividend by NBFCs,” RBI said in the draft circular.

The new dividend policy is unlikely to impact most NBFCs as over the past three years, their dividend payout have been 10-20 per cent for most entities, with a few paying out 20-30 per cent, rating agency Icra said in a note on Thursday.

Therefore, it expects most NBFCs to comfortably meet the new capital adequacy ratio norms, even though a few with higher NPAs may find it difficult to meet the net NPA filter and thus dividend payout for them could be impacted, the agency added.

While housing finance companies are not specifically mentioned in this draft circular, meeting the CAR criteria will be relatively easier for them given their lower risk weights on the large part of their portfolio, the report said, adding the new net bad loans criteria specified for NBFCs may not be a constraint for HFCs to pay dividends considering their low NPAs.

NBFCs not meeting the new CRAR criteria for the three periods but having CAR or leverage ratio at or above regulatory requirements for the accounting year for which dividend is proposed and have net NPA below 4 per cent for that year, can also propose dividend with a payout ratio of up to 15 per cent or as per the matrix proposed by the RBI in the 10-15 per cent range.

On the 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 per cent for the past three years, including the accounting year for which it proposes to declare dividend.

Non-systemically important non-deposit-taking NBFCs should have a leverage ratio of under-7 per cent for the past three years, including the accounting year for which it proposes to declare dividend, the RBI said.

It also said the core investment company should have adjusted net worth of at least 30 per cent of its aggregate risk-weighted assets on the balance sheet and risk-adjusted value of off-balance sheet items for the past three years, including the accounting year for which it proposes to declare dividend.

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