Loan pain to choke PSBs' dividend payout

Banks face the twin challenges of lower earnings due to muted credit growth and swelling of NPA provisions in FY16

Mindful of the severe pressure on the public-sector banks (PSBs) to make provisions for bad loans and weak financials, the government has estimated a dividend payout of Rs 2,672 crore from 16 banks for 2016-17. According to the government’s Outcome Budget 2016-17, eight players, including two large players — Punjab National Bank (PNB) and Bank of India (BoI) —might not be in a position to pay dividend for FY17.

According to PSB executives, banks face the twin challenges of lower earnings due to muted credit growth and swelling of provisions for non-performing assets (NPAs) in 2015-16. The obligation of credit costs would continue to be high in FY17 for further slippages and old NPAs.  

According  to Outcome Budget for 2016-17, the other banks who might skip dividend are Central Bank of India; Indian Overseas Bank; Allahabad Bank; UCO Bank; United Bank of India; and Vijaya Bank. The finance ministry had drastically revised the amounts it could get from these banks as dividend in 2015-16.

At the start of FY16, it had estimated the figure at Rs 6,930 crore, which was later revised down to Rs 1,232 crore. It was quite a climb-down from expecting all the 21 listed PSBs to reward the majority owner to pruning the list to five lenders — State Bank of India, Canara Bank, Andhra Bank, Union Bank and Punjab & Sindh Bank.

A drive by the Reserve Bank of India to clean up bank balance sheets through recognition of stressed loans and provisions for the same changed the calculations.

Collectively, the listed public banks posted a net loss of Rs 17,671 crore for 2015-16 against a net profit of Rs 36,349 crore for 2014-15. Canara Bank, which was expected to chip in with a dividend of Rs 133 crore, booked a net loss of Rs 2,812 crore for 2015-16 against a net profit of Rs 2,702 crore in the previous year.

As a consequence, the Bengaluru-based lender skipped dividend for FY16. SBI, the country’s largest lender, has proposed to pay Rs 1,214 crore for FY16 — an improvement from its earlier estimate of Rs 1,119 crore.

SBI posted a net profit of Rs 9,950 crore in FY16, down from Rs 13,101 crore in the previous year. Showing the effect of the banking regulator’s drive, the gross NPAs of listed banks jumped to Rs 5.81 lakh crore levels by March 2016. A major part of the bad loans comprised corporate debt.

The tally of bad loans for these banks was Rs 3,00,944 crore at the end of March 2015, according to data from Capitaline, compiled by Business Standard Research Bureau.