The Hindu Business Line : RBI fiat: Bankers see no hitch in paying dividends

THE latest RBI fiat on dividend payouts by banks may not prevent most of them from declaring dividends, according to bankers. However, stock brokers and analysts expect the central bank's decision to have a negative impact on the bank's stock prices.

The Union Bank of India Executive Director, Mr Ratnakar Hedge, said, ``I don't see the RBI policy having any major impact on dividend payment by banks. Union Bank NPAs would be lower than three per cent as on March 2004 results and would fulfil the criteria of RBI.''

He said even 90 days provisioning norms for NPAs would not affect most of the banks as the recovery process of bad assets by banks have been good in 2003-04. From April this year, banks have to make provision for NPA from 180 days to 90 days.

Mr P.K. Gupta, Executive Director, Corporation Bank, said, ``RBI is trying to convey that the long-term financial strength and viability of the bank are of paramount importance with regard to preventing any systemic risks.''

There has been concern, especially among stock market players, over the dividend payout by most of the banks as the NPA of most of listed banks is over 3 per cent to their net advances.

According to the RBI data for 2002-03 on NPAs, several banks like SBI, PNB, Bank of Baroda and other had NPAs over three per cent.

However, several bankers, especially from public sector said they had been seeking RBI permission for payment of dividend. ``Corporation Bank is a strong bank, despite this we have always been seeking RBI approval before dividend payout,'' Mr Gupta said.

A top official of a public sector bank said there could be few cases in which RBI would stop the dividend payout taking into consideration the financial health of the bank, but in most of the banks this would not happen. He said, ``This is unlikely to happen in case of PSUs banks as the majority stake is with the Government and in case of dividend is stopped by RBI, Government would be biggest loser.''

But brokers said this could affect the sentiment in the market towards banks stocks. ``There will be panic in banking sector stocks as many of the banks will not be able to pay dividend without RBI approval. Even in past, RBI approval was needed for payment of dividend in excess of 25 per cent but now it will be needed to pay any dividend,'' said Mr Arun Kejriwal of KRIS Research.

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