RBI issues guidelines for NBFCs to declare dividend

What is the News? 

The Reserve Bank of India(RBI) has issued guidelines that spell out the eligibility criteria for non-banking finance companies(NBFCs) to declare dividends.

What is Dividend? 

• Dividend is a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves). 

What is NBFC? 

• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956. It is a company which has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner 
• It engages in business activities of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority 
• It will also engage in business activities such as other marketable securities like nature, leasing, hire-purchase, insurance business, chit business.  
• The definition of NBFCs does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. 
• Features of NBFCs 

• NBFC cannot accept demand deposits. 
• NBFCs do not form part of the payment and settlement system  
• Further, NBFCs cannot issue cheques drawn on itself. 
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs. 

Source: Livemint