Finance Minister Mr. Chidambram

REJOINDER TO FINANCE MINISTER P CHIDAMBARAM’S STATEMENT--By  Subramanian

I personally feel that this is the last time Mr P Chidambaram will be contesting Parliamentary (Lok Sabha) elections.  And the word going around in TN is that the chances of his winning from the present constituency is remote (that is his home constituency for the past 30 years).

There is a big controversy surrounding his last (2009) election result.

We must clarify to the general public and elite in this country that –

1.    Bankers are neither selfish nor idiots to ask for the entire profit for wage revision.

2.    As the Net Profit finally declared was arrived at after deducting all staff costs - including provisions for terminal benefits and wage arrears, if any - what we demand is only a portion of the net profit to meet our incremental wages.

3.    If we remember, Net profit of all banks in 2012-13 is Rs.91,200 Crores.   Out of this, the net profit of public sector banks alone was Rs.50,582 Crores.

4.    Therefore, even if 20% of this amount (Rs.10,116 Crores) is carved out for meeting the wage increase of PSB staff, the building of further capital for future needs (internal accruals) and payment of dividends will not get affected.

One more point that everybody misses.

The banks pay 20% to 150% dividend each year, with the average being 50%.

But there is a catch here.

This dividend is always calculated on the 'Face Value' of each share which is usually Rs.10 for the public sector banks.

Therefore, 50% dividend means only Rs.5 per share.  Here, the issue price per share on weighted average method is to be calculated.

Suppose the issue price is Rs.60 per share.  Then the dividend of Rs.5 for a share issued to the shareholder (who bought his share at Rs.60 per share) works out to only 8.33%.  This is worse than the Rate of Interest paid on Term Deposits (which is currently 9.25% on an average).

My point is, except a very few banks (who issued their shares at a low price), all others are cheating the shareholders.  If you compare the dividend with market value of the share, the returns will be still less.

Thus, the dividend amount in absolute terms will be very less compared to the value of Shares issued and subscribed and the balance in the Share Premium account (the excess of issue price over the face value of each share multiplied by the actual number of shares issued).

Without concentrating on recovering the sticky big ticket advances, diverting the attention of the common masses by issuing misleading statements like "All profits cannot be used to fund wage revision, as they are required to pay dividends and to build up capital for future needs" is silly, absurd, misleading, irresponsible and simply unacceptable, coming as it does from the mouth of a Finance Minister who is stated to have done his MBA at Harvard University, USA.

Date: 13-02-2014                                                                                                    V Subramanian