Public lenders disappoint on the dividend front

Investors expecting high dividend from public sector banks are a disappointed lot. As 2013-14 was a rough period for these banks, investors had been pinning hopes on dividend payouts, given the track record of these lenders in this regard.

However, all hopes fell flat. There has been a sharp drop, if one considers the absolute quantum of dividend payouts. The recent rally in the stocks of these banks, however, somewhat compensated investors, provided they exited their investments.

In terms of dividends, investors in mid-cap banks have been hurt the most. For instance, Andhra Bank’s dividend payout, which averaged Rs 5 a share since 2010, declined a whopping 75 per cent to an interim dividend of Rs 1.1. The bank didn’t pay any final dividend. In the case of Allahabad Bank, the dividend was only Rs 2.5, against Rs 6 earlier, a drop of about 60 per cent.

Vaibhav Agrawal, vice-president, research (banking), at Angel Broking, asks, “How can one expect hefty dividends from banks that had a horrible year, with balance sheets being squeezed and non-performing assets (NPAs) rising?”

The case of larger lenders such as Punjab National Bank (PNB) isn’t any different. Against Rs 27 a share in 2013, PNB declared an interim dividend of Rs 10; it didn’t pay any final dividend. Bank of Baroda, one of the best-performing public sector lenders of late, offered the same payout, Rs 21.5, in two tranches —interim and final.

Sudip Bandyopadhyay, president, Destimoney Securities, says, “Companies give better dividends when there is good cash flow and growth in profits. In case of public sector banks, both the factors were absent. The quality of assets remained bad and, in such a situation, it wasn’t possible to pay dividends.”

However, with situation improving somewhat, experts are optimistic about selective banks. Bandyopadhyay says one needs to be careful and choosy while selecting the stocks of the banks.

Another set of experts says the financial health of banks depends on a turnaround for the economy. In case what the market anticipates fructifies and the economy strengthens in the coming months, these banks will be the main beneficiaries.

In the past six months, the stocks of most public sector lenders have jumped 40-70 per cent. During 2013-14, investors and fund managers stayed away from these stocks, owing to negative news flow related to these.

At times, shares of the India’s largest lender, State Bank of India, slipped well below Rs 1,475, while those of PNB and Bank of Baroda fell to about Rs 400.