The Telegraph
Since 1st March, 1999
Email This Page
Big banks run into payout wall

Mumbai, April 25: Two of the country’s largest banks cannot declare dividends without Reserve Bank clearance even as some of their smaller rivals come out unscathed from the new payout curbs announced last week.

State Bank of India and ICICI Bank have non-performing assets (NPAs) of more than 3 per cent, a handicap that will deny them the right to offer dividends as they please. Corporation Bank, Oriental Bank of Commerce, Andhra Bank and HDFC Bank carry lesser bad loans and, therefore, are not bound by the new rule.

The revised guidelines, which centre on capital adequacy and NPAs, will leave the nimbler pack of banks free to declare a payout that is 33.33 per cent of net profit — the maximum they are allowed to.

On Friday, the Reserve Bank sent a circular that said only banks which have a 11 per cent capital adequacy and NPAs less than 3 per cent can announce dividends on their own; those that don’t will need its approval. Both figures must hold in the preceding two years as well as the accounting period related to the dividend.

The apex bank has, in effect, helped banks, which had to seek its nod even if their performance was steady. The rules are much simpler for companies, which only have to get their dividends ratified by shareholders.

However, in the same breath, the central bank has made the going tough for banks which have not been able to keep their net NPAs below 3 per cent or those which have capital adequacy ratio of less than 11 per cent.

For shareholders of the country’s largest bank, SBI, there is a glimmer of hope though, say analysts. The bank is expected to bring down its NPA to less than 3 per cent for 2003-04. It had announced while declaring its third-quarter results (October-December 2003) that the volume of its bad loans had declined to 2.88 per cent.

On capital adequacy, SBI is comfortably placed: It had a figure of 13.50 per cent for 2002-03 and 13.35 in 2001-02.

While most banks will make the grade on the capital adequacy, most will fall short on the NPA count.

Canara Bank’s net NPA in December 2003 was pegged at 4.05 per cent, Bank of India’s was at 4.99 percent and ICICI Bank’s was at 4.7 per cent. The three big banks will, therefore, continue to seek permission from RBI, unless they see a dramatic improvement in NPA levels in their full-year results for 2003-04.

It will be interesting to see how bank shares react to the new fiat on Tuesday, market observers say. They have been on a general uptrend. The bullish mood in banking shares is not only backed by impressive performance but also by virtue of the fact that they are expected to outperform other sectors as the economy picks up.

Analysts said the RBI notification will enable banks like Corporation Bank, which comes good on its norms, to hand more generous dividends. The bank announced a net profit of Rs 504.13 crore on Saturday; it has declared a dividend of 60 per cent for the year. This will cost it Rs 86 crore from profits. The new norms allow it to declare a dividend of up to Rs 168 crore, without seeking RBI approval.

Email This Page