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For the declaration of dividend by NBFC, it is mandatory to transfer 20% of PAT to a reserve fund.
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The dividend is the payment entitled to receive by the shareholders, usually in the form of distribution of its profits. The profits earned by the Company can either be retained in business or used for acquisitions, expansion or diversification, or it can be distributed to the shareholders. The Company has the discretion to retain a part of its profits and distribute the balance to its shareholders as a dividend.
The company can declare the dividend to both class of shares that is Equity or preference.
The dividend is classified into three categories namely Interim dividend, Final dividend, Preference share Dividend.
The Board has the absolute power to declare interim dividend during the financial year, as and when they consider it fit. Normally, the Board endeavors to declare an interim dividend after finalization of quarterly financial accounts. The Board may declare an interim dividend based on profits of the Company, one or more times in a financial year as and when considered appropriate.
After the annual accounts are prepared, the Board may recommend the final dividend to the shareholders for their approval in the General Meeting of the Company. In the event the Board declares more than one interim dividend in a financial year, the Board may recommend to the shareholder to treat the last interim dividend as a final Dividend.
The dividend by NBFC can be paid out of Followings:
Recommended Article: Meaning, Process of Declaration of Dividend.
The Retained earnings strengthen the Company’s net owned funds. It will further help in maintaining Capital Adequacy Ratio (CAR) for Non-Banking Financial Companies (NBFCs) in the growth phase.
The Board from time to time will decide utilization of the retained earnings depending on various factors including organic/inorganic growth strategies of the Company, market competition, creating long-term shareholder value, etc.
The Board shall ensure the judicious balancing of these factors in the interest of the Company and its stakeholders.
On the conclusive fact of declaration and payment of dividend given under section 123 of Companies Act, 2013 more or less applicable to Non-Banking Financial institution unless the regulatory organization gives specific direction on it. On literal go through of Section 123 read with rules thereunder, the dividend can be declared at Board Meeting finalized at Annual General Meeting of Company became the liability of Company to be paid on due time.
Also Read: Dividend Declaration by NBFC.
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