Government wants higher dividend from CPSEs

A minimum dividend of 30% declaration of special dividend and issue of bonus shares are the new guidelines

A minimum dividend of 30 per cent, declaration of special dividend and issue of bonus shares are the new guidelines from the central government as the owner for central public sector enterprises (CPSE).

The department of economic affairs under the union ministry of finance in its office memorandum on January 5, 2016, said as a majority owner of CPSEs, the central government has decided on the new dividend policy.

According to the new policy, a CPSE will declare an annual dividend of 30 percent of profit after tax (PAT) or 30 per cent of the central government's equity whichever is higher; declaration of special dividend as a return for its equity investments; and issue of bonus shares by companies having large cash reserves.

According to the department, the companies will have to look at market borrowings for capital investments so as to leverage the favourable debt-equity ratio.

The economic affairs department also said market borrowing for capex would enforce more professionalism in the CPSEs.

The new dividend policy seeks to increase the dividend income for the central government from the earlier rates of 20 per cent of PAT or 20 per cent of equity which ever is higher.