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How RBI decision to withhold dividend payout could help banks conserve capital

Surabhi Mumbai | Updated on April 20, 2020 Published on April 20, 2020

Dividends

15 banks paid over ₹7,164 crore as dividend for FY19

The RBI’s decision to not allow banks to announce dividends for FY20 until further notice could help them conserve a large chunk of capital, if the payouts for FY19 are anything to go by.

As many as 15 banks paid a total of ₹7,163.75 crore as dividend for FY19, , according to data sourced from nseinfobase.com.

While public sector lenders, including State Bank of India, did not announce a dividend for FY19, private sector banks HDFC Bank and IndusInd Bank paid dividends of ₹4,087.56 crore and ₹519.68 crore, respectively (see table).

Two banks have also announced interim dividend for FY20 amounting to ₹113.04 crore. City Union Bank paid a first interim dividend of ₹36.79 crore while RBL Bank paid one of ₹76.25 crore.

Significantly, HDFC Bank, in its board meeting on April 18, did not propose any final dividend for FY20, just a day after the RBI’s communique on the issue.

Second set of measures

RBI Governor Shaktikanta Das, on April 17, had said banks must conserve capital to retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty. This was part of the second set of measures from the central bank to address slowing growth amid the lockdown.

“It has, therefore, been decided that in view of the Covid-19-related economic shock, scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions,” Das had said, adding that this would be reviewed on the basis of the financial position of banks for the quarter ending September 30, 2020.

Under RBI norms, only banks that comply with certain minimum prudential requirements are eligible to declare dividends.

Analysts hail proposal

Analysts have welcomed the proposal and noted that this would help them conserve capital and meet any stress on asset quality.

“The proposal to temporarily defer dividend payment by banks is positive for their capital positions and their loss absorption capacity amid an expected increase in stress on asset quality. The coupon payment on the Basel III Tier I bonds is paid out of the profits of the bank and discretionary in nature,” Karthik Srinivasan, Senior Vice-President, Group Head - Financial Sector Ratings, ICRA, had said. He added that dividend is one of the discretionary items available for distribution by banks. “…hence, other distributions including coupons on these bonds will not be impacted,” he had noted.

CARE Ratings noted that the dividend decision to retain capital within the banks would have a marginal impact on banks’ balance sheets but could impact smaller shareholders.

 

Dividend Paid by Banks for FY 2018-19

Company

Dividend (Rs.) Paid Per Share

Total Dividend Paid

  

(Rs.lacs)

HDFC BANK

15

4,08,756.62

ICICI BANK

1

64,525.96

INDUSIND BANK

7.5

51,968.28

YES BANK

2

46,337.29

BANDHAN BANK

3

35,792.69

FEDERAL BANK

1.4

27,803.77

AXIS BANK

1

26,195.20

KOTAK MAHINDRA BANK

0.8

15,274.69

RBL BANK

2.7

11,548.28

KARNATAKA BANK

3.5

9,891.27

KARUR VYSYA BANK

0.6

4,795.92

SOUTH INDIAN BANK

0.25

4,524.21

CITY UNION BANK

0.5

3,672.50

DCB BANK

1

3,095.76

AU SMALL FINANCE BANK

0.75

2,192.99

Total Dividend Payout

 

7,16,375.43

Interim Dividend of Banks for FY 2019-20

Company

Dividend (Rs.)

Dividend (%)

Face Value (Rs.)

Dividend Paid

    

(Rs.lacs)

CITY UNION BANK

0.5

50

1

3,679.07

RBL BANK

1.5

15

10

7,625.49

Total Dividend Payout

   

11,304.56

Source: nseinfobase.com

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Published on April 20, 2020
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