Financial Daily from THE HINDU group of publications
Friday, May 06, 2005
RBI & Other Central Banks
Money & Banking - Financial Policy
Dividend pay-out raised to 40 pc BI sets tough norms
Mumbai , May 5
BANKS have been allowed more flexibility and can now pay dividend up to 40 per cent of their net profit in a year. This is subject to them following the guidelines issued by the Reserve Bank of India on Thursday.
The central bank has raised the cap on banks' dividend payout ratio from 33.33 per cent to 40 per cent.
Banks must have a capital adequacy ratio of 11 per cent or more for each of the last three years and zero per cent net NPA to pay the maximum dividend of 40 per cent of their net profit in a year.
The central bank said commercial banks must have a minimum capital adequacy ratio of 9 per cent for the past three years and non-performing loans below 7 per cent to be eligible to declare dividends. Banks would not require prior approval of the central bank for payment of dividend as long as they met provisions in the guidelines. The new guidelines would be applicable to the dividends declared for the accounting year ended March 31, 2005 onwards.
In case a bank does not meet the above capital adequacy norm in the previous two years, but has a ratio at least 9 per cent for the accounting year for which it proposes to declare dividend, it would be eligible provided its net NPA ratio is less than 5 per cent.
The proposed dividend should be payable out of the current year's profit. The guidelines said in case the profit for the relevant period includes any extra-ordinary profit or income, the payout ratio should be computed after excluding such extra-ordinary items for reckoning compliance with the prudential payout ratio.
The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of any qualifications by the statutory auditors. In case of any qualification to that effect, the net profit should be suitably adjusted while computing the dividend payout ratio.
For 2004-05, if the Investment Fluctuation Reserve is less than 4 per cent of securities, the dividend payout ratio shall be computed with respect to the Adjusted Net Profit.
The RBI will not entertain any application for a higher dividend payout ratio than the one for which the banks qualify.
Pay-outs for FY05
HDFC Bank - Rs 4.50 per share (including a special one-time dividend of 50 paise per share on the occasion of the bank completing 10 years)
ICICI Bank - Rs 7.50 per share and a special bonus of Rs 1 per share Corporation Bank - Rs 3.50 per share
UTI Bank - Rs. 2.80 per share
Union Bank of India - Rs 3.50 per share
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