Indian Bank to withdraw dividend payment resolution after RBI's reply

Indian Bank's Board on May 10 has recommended for payment of dividend at Rs 6 per share of the equity capital for 2017-18

Public sector lender Indian Bank has decided to withdraw a resolution related to dividend payment after regulator Reserve Bank of India (RBI) said the bank can declare a dividend after fully providing for Mark-to-Market (MTM) loss, gratuity and other provisions.

The bank's MTM losses alone are around Rs 5.47 billion.

Indian Bank's Board on May 10 had recommended payment of dividend at Rs 6 per share (60 per cent) of the equity capital for 2017-18.

As per Section 15(1) of the Banking Regulation Act, no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisation expenses, shares-selling commissions, brokerage, amounts of losses incurred and any other interim of expenditure not represented by tangible assets have been completely written off.

However, a banking company may pay dividends on its shares without writing off the depreciation, if any, in the value of its investments in shares, debentures or bonds in any case adequate provision for such depreciation.

The bank said that RBI circular in April 2018 gave options in respect of MTM losses and additional liability on gratuity, including an option to spread MTM losses of AFS and HFT investments for the quarter ended December 2017 and March 31, 2018, equally over the four quarters commencing with the quarter in which the loss is incurred.

It has also permitted banks to spread additional liability on account of the enhancement in gratuity limit from Rs 1 million to Rs 2 million from March 2018, under Payment of Gratuity Act, 1972, over four quarters beginning with the quarter ended March 31, 2018.

Indian Bank has exercised the options during the quarter ended March 31, 2018, and deferred the gratuity expenditure of Rs 243.3 million to subsequent three quarters and also spread the MTM losses of total Rs 5.47 billion to subsequent quarters, after providing for December 2017 and March 2018.

The bank had sought RBI's permission for the declaration of dividend.