Financial Daily from THE HINDU group of publications
Saturday, Jun 05, 2004

Cross Currency

Group Sites

Money & Banking - Financial Policy

New dividend norms for primary dealers

Our Bureau

Mumbai , June 4

AFTER tightening the norms for declaration of dividends by banks, the Reserve Bank of India has now done the same for primary dealers. Primary dealers or bond houses cannot declare dividend if their capital to risk weighted assets ratio (CRAR) has fallen below the regulatory minimum of 15 per cent in any of the previous four quarters.

The new norms will be applicable to the dividend declaration from 2003-04 onwards and any violation of the same could even result in a withdrawal of authorisation for carrying on business as a primary dealer (PD).

Said Mr R.V. Joshi, Managing Director, Securities Trading Corporation of India Ltd, "In a rising rate scenario primary dealers are required to be careful. Ploughing back profits is always good to maintain the strength of the organisation."

Some small players such as PNB Gilts and I-Caps had declared very high dividends of about 75 per cent over the last two years.

The need for a prudent dividend policy has been reviewed in consultation with the Standing Technical Advisory Committee on Financial Regulation and the central bank has been decided to adopt a regulatory approach for declaration of dividend with focus on the `dividend payout ratio'.

According to the RBI circular, the PD should have complied with the regulations on transfer of profits to statutory reserves and the regulatory guidelines relating to provisioning and valuation of securities, etc.

For PDs having CRAR between the regulatory minimum of 15 per cent and 20 per cent during all the four quarters of the previous year the dividend payout ratio should not exceed 33.3 per cent. For PDs having CRAR above 20 per cent during all the four quarters of the previous year, the dividend payout ratio is not to exceed 50 per cent.

The proposed dividend should be payable out of the current year's profits and dividend payout ratio should be calculated as a percentage of dividend payable in a year (excluding dividend tax) to net profit during the year.

In case the profit for the relevant period includes any extraordinary profit income, the payout ratio should be computed after excluding such extraordinary items for compliance with the payout ratio ceilings.

More Stories on : Financial Policy | Financial Services

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Foreign currency inflows slowing

Rupee firms up; call rates spurt
Can Fin Homes to pay 25 pc
SBI tie-up with Maruti smoothens the road for car loan borrowers in Kerala
LIC South Zone tops in three biz segments
New dividend norms for primary dealers
BoR gets Maharashtra nod for franking stamps
Canara Bank opens branch in Udupi
ICICI Bank to end legacy NPA issue — Cell for stressed assets to be dismantled
Aircel-ICICI Bank co-branded credit card
Corpn Bank revises FCNR(B), NRE term deposit rates
United Bank modify rates

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line