The Department of Investment and Capital Asset Management (DIPAM) published the rules. They say financial CPSEs, like Non-Banking Financial Companies (NBFCs), should also follow the 30% profit after tax dividend rule, unless there are legal limits.
In 2016, the rule was 30% of profit after tax or 5% of net worth. There were no rules for financial sector CPSEs. Companies with market prices below their book value for six months can consider buying back shares. These companies must have at least ₹3,000 crore in net worth and more than ₹1,500 crore in cash reserves. Share buybacks help improve their financial situation.
CPSEs can issue bonus shares when their reserves and surplus are 20 times or more their paid-up equity capital. A listed CPSE may split shares if its market price stays over 150 times the face value for six months. A cooling-off period of three years is required before another split. Share splitting offers more flexibility.
The rules cover CPSE subsidiaries where the main company holds over 51% shares. The Committee for Monitoring of Capital Management and Dividend by CPSEs (CMCDC), led by the Secretary of DIPAM, will look at all capital matters.
These rules do not apply to public banks, public insurance agencies or companies that cannot share profits, like those under Section 8 of the Companies Act.
Starting in the 2024-25 financial year, these rules motivate CPSEs to pay interim dividends every three months or at least twice yearly. Listed CPSEs must pay at least 90% of the expected annual dividend in interim payments. Final dividends must follow soon after the Annual General Meeting in September.
DIPAM highlighted these changes to improve CPSE value and shareholder rewards. Importantly, these rules give more financial and operational flexibility. This better flexibility could attract more investors to create value in CPSEs.
