Pay interim dividend, banks told

Banks expected to pay 10-20%

In a move aimed at shoring up the Centre's revenue receipts, the finance ministry has asked all nationalised banks to pay interim dividend.

Ministry officials told Business Standard banks were expected to pay between 10 per cent and 20 per cent interim dividend. However, the instruction to government nominees on the board of PSU banks does not specify the minimum dividend they should seek.

In the past, government nominees have been asked to seek at least 20 per cent dividend. The change in stance follows the Reserve Bank of India's guidelines issued last year on capping dividends.

In April 2004, the RBI had stipulated that banks with net non-performing assets below 3 per cent could not pay dividends.

Besides, they should have risk-weighted assets ratio (CRAR) of at least 11 per cent for the year in which the dividend is announced and also in the three preceding years.

Further, the dividend payout ratio (share of dividend payable in the net profit) should not exceed three years, the central bank had said.

The RBI guidelines have not gone down too well with the government, which is trying to make up for the Rs 3,000 crore shortfall on the transfer of the central banks' surplus during the current fiscal year.

Union Bank has already followed the government's directive and declared 20 per cent interim dividend today. Other banks are expected to follow suit over the next few days.

The government's directive comes at a time when nationalised banks like Oriental Bank of Commerce, Bank of India, Bank of Baroda and Dena Bank have declared lower profits in the third quarter.

Till December 2004, the Centre had mopped up Rs 2,800 crore as interim dividend from public sector companies and with power companies yet to oblige the government.

It subsequently instructed PSUs to pay up at least 10 per cent of the next year's anticipated dividend in the current fiscal year itself.

Payout call

Centre's gain
Banks to pay 10- 20% interim dividend

The catch
The Reserve Bank's guidelines on capping interim dividends in April 2004

The thinking <
The government wants to make good the Rs 3,000 crore shortfall on the transfer of the public sector banks' surplus in the current fiscal year