The Reserve Bank's recent draft circular on the declaration of dividends by non-banking financial companies (NBFCs) will have a neutral-to-positive impact on government-owned NBFCs, India Ratings and Research (Ind-Ra) said.
According to an Ind-Ra report, the new move will help government-owned NBFCs to strengthen their balance sheets by improving their leverage ratios and creating a buffer and surplus for fresh lending.
"It will also help them create better provisioning against delinquent assets. As the risk profile of NBFCs is changing at a fast pace, there was a need for a regulatory framework for dividend declaration," the report said.
The report said the role of NBFCs in the economy is increasing with the rising demand for credit.
According to the draft circular, non-deposit and systemically-important NBFCs with capital-to-risk weighted assets ratio (CRAR) below 15 per cent and net non-performing advances (NNPA) above 6 per cent will not be able to pay any dividend.
"The RBI draft circular, however, does not gel with the guidelines issued by the Department of Investment and Public Asset Management (DIPAM) on dividend payments," it said.
As per DIPAM, central public sector enterprises are required to pay a minimum annual dividend of 30 per cent of profit after tax or 5 per cent of net worth, whichever is higher.
"This anomaly will have to be resolved. Ind-Ra believes either the RBI will modify its draft circular or come up with a special provision for the government-owned NBFCs or DIPAM will have to revisit their guidelines for dividend payments. Ind-Ra believes that draft provisions on dividend payments will nudge NBFCs to accelerate the resolution of their stressed assets, otherwise, their dividend payments will remain constrained," the report said.
