Public Sector Banks To Pay ₹8,000 Cr Dividend To Centre

As loan growth quickened and asset quality improved, state-run banks paid hefty dividends to their shareholders, several of them after a nearly six-year hiatus.

The government is set to benefit the most from the banks’ large payouts, with around ₹8,000 crore projected. State-run banks performed well in the year ending March, with the exception of the Central Bank of India, which is still subject to the Reserve Bank of India’s (RBI) restricted quick corrective action framework (PCA) for weak banks.

The payouts by state-owned banks provide some respite to the government, which is struggling to raise funds amid increased expenditure on subsidies and tax cuts to keep inflation in check. The RBI also approved a lower-than-expected payout to the government for the fiscal year ending March 2022, upsetting the administration’s budget calculations.

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The government will receive the greatest payout from the country’s largest lender, State Bank of India, which will pay a dividend of Rs 3,600 crore. Union Bank will pay ₹1,084 crore, Canara Bank will pay ₹742 crore, while Indian Bank and Bank of India would each pay over ₹600 crore.

Despite earning a full-year profit, certain banks, such as Indian Overseas Bank (IOB) and IDBI Bank, did not declare a dividend this time. Uco Bank, on the other hand, has applied for regulatory authority to declare dividends after exiting the PCA framework, while Central Bank is unable to do so due to RBI constraints. The board of the Bank of Maharashtra will deliberate on a dividend payout on Wednesday.

“According to the Banking Regulation Act, no banking business may pay a dividend on its stock until all capitalised expenses, including carry-forward losses, have been fully wiped down.” Despite the fact that IOB’s profit doubled (to ₹1,710 crore from ₹831 crore the previous year), we were unable to pay a dividend because the bank had annual losses from 2015 to 2020, when it was under PCA. We started creating reserves last year,” said Partha Pratim Sengupta, managing director and chief executive officer of Indian Overseas Bank.

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Following the RBI’s asset quality review effort to check whether banks categorised loan repayments correctly and made enough provisions, state-owned banks stopped paying dividends in FY16 due to their weak financial status. State Bank of India declared nominal dividends in FY16, FY17, and FY21, while Indian Bank declared nominal dividends in FY18 and FY21.

Because of the pandemic’s unpredictability, the RBI prohibited banks from paying dividends in FY20 and instead advised them to save money. Stress tests conducted by the central bank revealed that banks’ asset quality and capital buffers may be jeopardised once more if regulatory forbearances granted during the pandemic expire. The regulator eased the restriction in FY21, allowing banks to pay 50% of the amount calculated by the dividend payment ratio.

“In FY22, public sector banks (PSBs) were profitable for the first time in six years. Almost all public banks have paid dividends for the first time in a long time, thanks to better profitability and capital position,” said Anil Gupta, vice-president, ICRA.

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“The financial performance of banks in FY21 was distinguished by a perceptible gain in profitability as their income remained stable, but expenditure dropped,” according to the RBI’s report on trends and advances in banking, released in December. This was in stark contrast to the previous five years, when PSBs suffered losses and private bank earnings fell.”

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