As PSU banks rush to announce interim dividends, probably to help their biggest stakeholder — the Government of India — address a financial crunch, the dividends announced so far do not indicate that the full-year payout this year would be any greater than that in the previous financial year.

In a way, the interim dividends announced with barely eight weeks to go for the financial year to close, show the stress the PSU banks are facing owing to a host of factors including a slowing economy, growing interest rates, increasing NPAs and decreasing profitability. These do not generate the sort of buzz that the expected payout of Coal India Ltd is generating. Additionally, many of the PSU banks will witness equity dilution because of the preferential share offer to GoI and with even smaller dividend would face higher payouts.

So far Oriental Bank of Commerce (Rs 4), Dena Bank (Rs 1.10), Indian Bank (Rs 3), Syndicate Bank and Allahabad Bank (Rs 2.50 each), IDBI Bank (Re 0.725) and Union Bank (Rs 2.70) have come out with interim dividend announcements. Andhra Bank, BoB, Canara Bank, Vijaya Bank and IOB have announced dates for their boards to meet to take a call on the issue.

What is of interest is how some PSU banks known for their generous dividend payouts would react to the avalanche of PSU bank dividends. Big banks, including SBI (which paid Rs 45 last year), BoB (Rs 21.50 last year) and PNB (Rs 27 last year), and smaller banks such as Corporation Bank (Rs 19 last year), are known for their generous dividend payouts. But so far only BoB and Corporation Bank have announced board meetings to consider interim dividends, while SBI and PNB have not made such an announcement so far.

Of these, except BoB, the others have seen a sharp downturn in net profit and EPS in the second quarter of this year compared to the first quarter this year.

Overall the performance of PSU banks during this financial year has been mixed. While some banks have shown flat or an improved performance in Q2 compared to Q1 of this fiscal, many others have seen their profit and EPS plunge. Hence, their final dividend payment for the full year would depend on how they perform in Q3 and Q4. Hence, the quantum of interim dividends reflects the cautious stance of these banks.

For instance, Dena Bank, Allahabad Bank, Union Bank and OBC have shown lower net profit and EPS in the quarter ending September compared to the previous quarter (June). Indian Bank posted a marginally lower profit of Rs 305.71 crore in the September quarter compared to Rs 317.39 crore in June this year. Syndicate Bank put up a better show in September this year with its net profit increasing to Rs 470.12 crore compared to Rs 452.28 crore in the June quarter. BoB also maintained its show in the September quarter with net profit of Rs 1,168.10 crore and EPS of Rs 27.73, that were almost identical to its June quarter show.

A good number of PSU banks have made preferential offer of shares to GoI, which would result in enhanced equity and, consequently, higher dividend outgo. Hence, it may be too early to expect the PSU banks to repeat last year’s generosity in dividend payouts for fiscal 2013-14 unless there is sharp improvement in their performance in the last two quarters.

(This article was published on January 13, 2014)
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