Banks likely to declare nominal dividends in Q4
- On Saturday, ICICI Bank announced a dividend of ₹2 per share, after reporting a 260% jump in net profit in the March quarter.
Banks are likely to declare nominal dividends for FY21 after the Reserve Bank of India (RBI) relaxed restrictions in this respect, bankers and analysts said. The central bank on Thursday allowed banks to pay up to 50% dividend of the amount determined as per the dividend payout ratio.
On Saturday, ICICI Bank announced a dividend of ₹2 per share, after reporting a 260% jump in net profit in the March quarter.
Analysts said banks are sitting on large amounts of capital they had raised last fiscal, and have made accelerated provisioning against potential bad loans in anticipation of the stress.
According to rating agency Icra, state-owned banks raised ₹12,000 crore and private banks raised ₹53,600 crore of equity capital in FY21.
“Once the RBI allows dividend payouts, banks have no reason to hold back or say ‘No, we won’t declare a dividend’ because that could be mistakenly construed as an admission of weak shock-absorption capacity,” said Krishnan ASV, sector lead (financials) at HDFC Securities.
Indian banks generally have a low dividend payout ratio of less than 20% on an average over the years. As per the RBI’s 2005 circular on ‘Declaration of dividends by banks’, depending on the matrix criteria of capital to risk weighted assets ratio and net non-performing assets, the dividend payout ratio cannot exceed 40%.
The dividend payout ratio is 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 profits/income, the payout ratio is computed after excluding such extraordinary items for reckoning compliance with the prudential payout ratio.
HDFC Bank has decided against giving any dividend for FY21, its first such decision in the past decade. Even in FY20, it had offered an interim dividend before the RBI barred banks from announcing dividends.
However, it had noted that the board shall reassess the position based on any further guidelines issued by the RBI.