Finance ministry wants 20% dividend from banks-Economic times
MUMBAI: The finance ministry, looking to raise resources to meet its revenue target, has directed all public sector banks that are grappling with bad loans to pay at least 20% dividend for the last fiscal year to boost its coffers even as banks.
In a letter to the banks last week, the ministry said they "will have to declare a minimum 20% of their capital or net profit, whichever is higher". Bank officials claim the government is desperately trying to bridge the fiscal deficit gap by directing them to pay higher dividends at a time when they fear their earnings could take a knock due to poor loan demand and rising bad loans.
"It's absurd to make such demands when banks are not doing well. It would be prudent to retain profits instead of paying steep dividends. Ultimately, the banks have to go back to the government for capital infusion," said the chairman and managing director of PSU bank, not wanting to be named. The government owns majority stakes in the PSU banks, which together enjoy a 70% market share, and, therefore, has to infuse capital into them. The finance ministry had shot off the letter after some banks approached it seeking exemption from paying high dividends.
According to data compiled by ET's research bureau, in FY12, PSU banks paid a cumulative dividend of Rs 8,550 crore. The banks, on an average, paid about 60% of capital and 15% of their net profit as dividends.
Among PSU banks, State Bank of IndiaBSE 1.98 % paid the highest dividend of Rs 2,348 crore, or 350% of its capital; Punjab National BankBSE 0.67 %, paid Rs 746 crore, or 220% of its capital. State-run banks reported net profits ofRs 41,913 crore in the nine months ended December 2012, compared with Rs 54,006 crore in the whole of fiscal year 2011-12, reflecting pressure on profits. Their profits in the fourth quarter, ending in March, is unlikely to be substantial to beat last year's figures because of rising bad loans.
According to the Budget, the government expects the Reserve Bank of India, PSU banks, financial institutions and insurance companies to jointly pay 73% higher dividend over the previous year.
It expects a dividend income of Rs 44,000 crore and the bulk of it is expected to come from the central bank.
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