Shares of REC Ltd. and Power Finance Corp. fell the most since March this year after the Reserve Bank of India issued draft guidelines on minimum financial benchmarks for non-bank lenders to declare dividends.
All non-bank finance companies must have a net non-performing asset ratio of less than 6% for the preceding three years, including the year of the dividend announcement, according to the draft norms released Wednesday evening. Subject to meeting the minimum regulatory requirement, the dividend payout will be calculated based on the lowest capital adequacy ratio for an NBFC and the lowest net worth for a core investment company in the preceding three years. The dividend payout ratio shall be calculated as a percentage of dividend payable in a year to net profit in that year.
“We expect PFC and REC to react negatively to the new rules as both entities have a historic dividend payout of nearly 45%. As per the new norms, they will be eligible for a 25% dividend payout,” Jignesh Shial of Emkay Global Financial Services Ltd. said in a note.
Being high-dividend-yielding NBFCs had been one of the arguments in favour of these entities, which will be negatively impacted by the new RBI rules.Jignesh Shial, Emkay Global
Shares of REC fell as much as 7.6% to Rs 125.5 apiece. Of the six analysts tracking the company, five have a ‘buy' rating and one suggests a ‘hold'. The average of Bloomberg consensus 12-month target prices implies an upside of 28.4%.
Shares of Power Finance fell 6.8% to Rs 110.3 apiece. Of the eight analysts track the stock, seven have a ‘buy' rating and one suggests a ‘hold'. The average of Bloomberg consensus 12-month target prices implies an upside of 33.6%.
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