Sbi Suspends Dividend Warrant Facility
State Bank of India (SBI) has suspended its dividend and interest warrant facility for its corporate clients in the wake of the CRB Capital Markets fiasco. The suspension is expected to trigger a similar move by other nationalised banks.
SBI chairman M S Verma told Business Standard yesterday that the bank was reviewing the existing system and would reinstate the service on a case-to-case basis.
The SBI move will affect several corporates as the issue of dividends will peak very soon. Companies, which ended their financial year in March 1997, will now have to finalise their annual accounts and dividends before September. Besides, the regular interest warrants on fixed deposits will also suffer. The SBI main branch in Mumbai alone provides the service to more than 240 companies.
The bank has also hiked the service charges for the dividend warrant facility to certain non-banking finance companies (NBFCs) by 40 to 50 per cent. According to Verma, the increase in service charges was anyway due as the fee had not been hiked for quite a few years.
The RBI had asked commercial banks on May 27 to stop extending `at par encashment facility for dividend/interest warrants and refund orders in all the branches and allow this system only in select branches.
Following the circular and the CRB episode, SBI had decided to review the current position in this regard. The fact is that there can be a repeat of the CRB episode even with seemingly fine companies; there may be people within the organisation who may follow fraudulent practices, said a top SBI official.
The dividend warrant facility is largely used by Non-banking finance companies (NBFCs) and manufacturing companies to meet the interest and principal payment obligations on fixed deposits. CRB Capital Markets had a similar facility which was used to meet its fixed deposit liabilities. The SBIs move to suspend the service will place these companies in a fix.
The increase in service charges on the facility will also make it costlier for NBFCs to borrow via the fixed deposit route.
. This will queer the pitch particularly for smaller NBFCs, who find it difficult to obtain funds from banks and financial institutions.