RBI's draft NBFC dividend policy unlikely to impact most players, claims ICRA

The Reserve Bank of India's draft circular on dividend distribution by NBFCs is unlikely to impact most of the industry players, said ratings agency ICRA on Thursday.


The RBI has proposed that NBFCs should have at least 15 per cent Capital to Risk Weighted Assets Ratio (CRAR) for the last 3 years, including the accounting year for which it proposes to declare a dividend.

The RBI sought comments on the draft circular from NBFCs, industry participants and other interested parties by December 24.

According to ICRA, over the last three years, dividend pay-out ratios have been about 10-20 per cent for most entities, with few in the range of 20-30 per cent.

The ratings agency expects most NBFCs to comfortably meet the CAR (Capital Adequacy Ratio) criteria but a few entities having high NPAs would find it difficult to meet the net NPA filter and thus dividend payout for them could be impacted, if this circular is implemented.

It noted that while HFCs (housing finance companies) have not been specifically mentioned in this draft, meeting the CAR criteria would be relatively easier given the lower risk weights on the large part of their portfolio.

Furthermore, the Net NPA criteria specified for NBFCs may not be a constraint for HFCs to pay out dividend considering the low NPAs for the segment currently.

"NBFCs complying with the minimum regulatory capital adequacy ratio or leverage ratio for the last three years and having net NPA below 6 per cent in each of the last three years can declare dividends with a pay-out ratio of up to 50 per cent or as per the matrix proposed by the RBI," said Manushree Saggar, Vice President - Financial Sector Ratings, ICRA.

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