New payout norms scythe bank stocks

Bank stocks were hammered yesterday with the BSE Bankex Index crashing 3.82 per cent or 65.73 points after the Reserve Bank of India tightened norms for banks' dividend payout ratio to 33.3 per cent.

Most public sector bank stocks, especially the high dividend yield stocks, were the worst hit crashing in the range of 7 to 11 per cent in yesterday's trading.

Other PSBs also witnessed selling pressure as the sentiment turned negative with exit polls indicating that the opposition gaining after the second round of voting that ended on Monday.

The low priced good dividend yield bank stocks were among the biggest losers. Dena Bank was down 13.22 per cent to Rs 33.15, Andhra Bank was down 11.41 per cent to Rs 62.10, IndusInd Bank was down 10.64 to Rs 45.75), Bank of India was down 10.36 percent to Rs 72.25 and Union Bank of India ended 11 per cent lower at Rs 74.40.

Amitabh Chakravorthy, head of research, PCG, Kotak Securities said, "The RBI has taken a very prudent decision by tightening the dividend payout norms which will prevent weak banks from announcing huge dividend just to retain investors interest."

While the RBI announcement did dampen sentiment towards bank stocks, yesterday's crash was purely profit booking as most counters had a decent run in the past few trading sessions, said an institutional dealer with a domestic broking firm.

Among prominent public sector banks, the major losers were Canara Bank down 7.24 per cent to Rs 169.10, Corporation Bank was down 7.24 per cent to Rs 331.35, Bank of Baroda down 9.20 per cent to Rs 228.80, Oriental Bank of Commerce down 6.41 per cent to Rs 324.90, while State Bank of India ended 41.7 percent lower to close at Rs 633. Punjab National Bank recovered from its low of Rs 363 to finally close at Rs 381.70, down 0.82 per cent.

RBI tightened the norms for dividend payout by banks. As per the new norms, only those banks with a net NPA of less than 3 per cent can declare dividend.

Another pre-requisite is that the bank should have risk-weighted assets ratio (CRAR) of at least 11 per cent for preceding two completed years and also for the accounting year for which it proposes to declare dividend.

RBI has also put restriction on the quantum of dividend payout by banks. It has capped the dividend payout ratio of banks at 33.3 per cent.

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 year includes any extra-ordinary profits/ income, the payout ratio shall be computed after excluding such extra-ordinary items, RBI has said.