New Delhi, Dec 27 : The Finance Industry Development Council (FIDC), an industry body of asset and loan financing NBFCs has written to the Reserve Bank of India (RBI) seeking implementation of the proposed guidelines for dividend distribution by NBFCs with effect from April 1, 2021.
As per the draft circular released by the RBI, the guidelines would be applicable for dividend to be declared for the current financial year beginning April 1, 2020.
In a letter to the RBI, the industry body said: “The Draft Circular is proposed to take effect from the financial year beginning April 1, 2020 which would in effect impact the declaration of dividend for the current financial year as well in which interim dividend may already have been declared – this will be akin to giving retrospective effect to the guidelines and hence the request should be for the guidelines to take effect only from April 1, 2021, i.e. for dividend from financial year 2021-2022 onwards.”
It further said that for preference shares which have already been issued with a certain promised rate of dividend, the proposed guidelines could in effect bar the Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND-SI) from making payment of the same despite having sufficient distributable profits in terms of the Act. All such existing instruments should be grandfathered, FIDC said.
It also told the central bank that the circular should be explicitly limited to dividend on only equity shares.
Companies often issue redeemable preference shares carrying fixed rates of dividend which need to be treated differently.
“Without prejudice to this suggestion, furthermore, we have to state that under Section 47 (Voting Rights) of the Act, failure to pay dividend for a period of two years or more gives preference shareholders voting rights at par with equity shareholders.”
According to FIDC, if the proposed guidelines under the draft circular are introduced, such a situation could be triggered despite the NBFC-ND-SI having distributable profits available for honouring the promised preference share dividend.
The Act should be amended as a pre-cursor to the draft circular to ensure that the voting rights would not trigger if the non-payment of the preference share dividend for a period of two years or more is due to the RBI stipulation, it added, among other recommendations.
The RBI released the draft circular for dividend distribution by NBFCs on December 9.
Disclaimer: This story is auto-generated from IANS service.