Lower dividend payout estimates put question mark on PSBs’ performance

The Finance Ministry has lowered the estimate for dividend payout by public sector banks and financial institutions for the current fiscal. Lowering of dividend estimates is mainly due to the ‘not-so-strong’ performance of public sector banks during the current financial year.

The revised estimate for dividend payout by public sector banks and financial institutions during 2014-15 is a little over ₹7,400 crore. This is 31 per cent lower than the Budget estimate.

The list of such entities includes 22 public sector banks, six nationalised insurance companies, Exim Bank, and IIFCL. The dividend payout estimate has been lowered mainly for banks and one insurance company.

Interestingly, the revised estimate is what the Centre received in FY2013-14. For example, the Budget estimates for payment of dividend by SBI was ₹1,925.13 crore, which was lowered to ₹1,312.38 crore in the revised estimates. This is the same amount paid for the previous fiscal.

The latest financial results of all public sector banks show that as on December 31, 2014, deposit growth was 10.52 per cent as against 16.76 per cent on December 31, 2013. Cost of deposits went up for 15 banks, while it fell at 12.

Public sector banks registered a growth of over 8 per cent in terms of advances against 16.05 per cent as on December 31, 2013. The net interest margin was in the range of 1.83-3.47 per cent against 1.97-3.61 per cent during last fiscal. This margin has declined in all but six public sector banks . Return on assets was about (-)0.79 per cent as on December, 2014 against the range of (-) 1.84 to 0.81 per cent in the corresponding period previous year.

One of the key concerns for the banks is increasing bad debts. Data shows that combined bad debts for all public sector banks reached 5.64 per cent at the end-December, 2014. This is the highest after 5.73 per cent at the end of 2004-05.

In fact, during the last few quarters, there has been a continuous rise in bad debt levels, making the situation alarming. From 4.72 per cent at the end of March, 2014, it rose to 5.29 per cent at the end of September and to 5.64 per cent in the December quarter. Higher NPA means higher provisioning results in lower profits, which impacts the balance sheet. Banks will start announcing annual results for 2014-15 by May. Following this, annual general meetings of shareholders will approve dividend payouts.