Govt slashes dividend payment estimates from banks, FIs for FY15

With profitability under pressure, the Union government has cut its estimates for dividend payout for 2014-15 from public sector banks (PSBs) and state-owned financial institutions (FIs) by about 31 per cent, to Rs 7,481 crore.

The Budget for 2014-15 had originally expected dividend income from PSBs and financial institutions to be Rs 10,887 crore.

The finance ministry expects PSBs and FIs to chip in Rs 10,276 crore as dividend to the state coffers as dividend in financial year 2015-16, which starts from April 1.

PSB profitability has been under pressure due to low interest income, higher provisioning for stressed loans and an enhanced salary bill. Banks have agreed to a 15 per cent rise in wages, under a pact signed with staff and employee unions.

WHY DIVIDEND PAYOUT WILL STAY LOW

• Tepid interest income as loan growth remained weak
   
• Fees, commissions impacted as economy in low gear
   
• Higher slippages have kept credit cost high
   
• Less than expected recoveries from non-performing assets
   
• Enhanced wage bill

Vibha Batra, senior vice-president and co-head of financial sector ratings at ICRA, said banks do expect an improvement in performance. Credit growth has been weak and recoveries from non-performing assets have been lower than expected.

A review of PSBs’ performance for the financial year's first nine months, ending December 2014, does show a substantial rise in net profit over April-December 2013. Listed state-owned banks posted a 15.4 per cent growth in profit at Rs 27,850 crore in the nine months.

However, they had also reported a 33 per cent drop in net profit at Rs 24,122 crore in April-December 2013, according to Capitaline data, compiled by Business Standard Research Bureau. ICRA said the 2014 increase was primarily because of this low base effect; the previous year’s results were impacted by a sharp rise in interest rates in July 2013. It expects a 12-18 per cent growth in net profit for PSBs in FY15, reversing the 27 per cent decline reported in FY14.

According to the finance ministry's outcome budget, it does not expect two distressed banks — Central Bank of India and United Bank of India — to pay dividend in 2014-15. The budget for FY15 had assumed the former would pay Rs 326 crore and the latter Rs 195 crore. Both had posted a net loss in 2013-14.

Banks and FIs paid Rs 7,309 crore to government as dividend in 2013-14. The highest payout was by Life Insurance Corporation of India at Rs 1,634 crore followed by the country’s largest lender, State Bank of India, at Rs 1,312 crore.

The combined net profit of 30 institutions for FY14 was Rs 75,787 crore, down from Rs 82,369 crore in 2012-13. They contributed Rs 9,714 crore to the coffers in 2012-13.