Finance Ministry revises norms for dividend payments, share buybacks, stock splits for PSUs

Union Finance Ministry has revised norms for dividend payments, share buybacks and stock splits at state-run companies to improve capital management and bolster performance of their equities.

The government has asked state-run non-banking financial companies (NBFCs) to pay a minimum annual dividend of 30 per cent of their profit subject to legal provisions, according to guidelines issued by the Department of Investment and Capital Asset Management (DIPAM) on Monday.

The Reserve Bank of India (RBI) prescribes dividend payout limits for NBFCs based on their capital requirements and asset quality.

Power Finance Corp and REC Ltd are the biggest state-run listed NBFCs.

Except for state-run banks and insurance companies, all public sector units (PSUs) have to pay a dividend of 30 per cent of profit or 4 per cent of net worth, whichever is higher.must pay an annual dividend of 30 percent of profit or 5 percent

Presently, PSUs have to pay an annual dividend of 30 per cent of profit or 5 per cent of net worth, whichever is higher.

The new guidelines will be applicable from the current financial year ending March 31, 2025.

Companies whose share price has been less than its book value for the past six months have a net worth of ₹3,000 crore and a cash balance of ₹1,500 crore have been asked to consider share buybacks.

Past limits for share buybacks were a net worth of at least ₹2,000 crore and cash and bank balance of ₹1,000 crore.

The guidelines require state-run firms to issue bonus shares if their reserves are 20 times the share capital from five times earlier.

State-run firms have also been asked to opt for stock splits in case the share price exceeds 150 times its face value for the last six months, from 50 times earlier. Stock splits help in improving trading volumes, making it attractive for retail investors.

Further, there should be a cooling-off period of at least three years between two successive share splits.