BUSINESS

Banks' dividend payout ratio cap raised to 40 p.c.

Special Correspondent

MUMBAI: The Reserve Bank of India (RBI) on Thursday raised the ceiling on bank dividend payout ratio to 40 per cent from 33.33 per cent, subject to fulfilment of stringent norms in respect of capital adequacy ratio (CAR) and non-performing assets (NPAs). Banks need not get prior approval of the central bank for the payment of dividend upto 40 per cent when they are well with the new norms.

The new guidelines would be applicable to dividends declared for the accounting year ended March 31, 2005 onwards. "In case any bank violates these guidelines, it would be viewed seriously and would attract penal action under Section 46 of the Banking Regulation Act, 1949,'' the RBI stated in a notification. It also stated that the regulatory focus was shifted to the dividend payout ratio from the quantum of dividend.

The banks should have CAR of at least 9 per cent for the year for which it proposes to declare the dividend and preceding two completed years. The net NPAs should be less than 7 per cent. In case any bank does not meet the above capital adequacy norm but has a CAR of at least 9 per cent for the accounting year for which it proposes to declare dividend, it would be eligible to declare dividend provided its net NPA ratio is less than 5 per cent.

The proposed dividend should be payable out of the current year's profit. The RBI should not have placed any explicit restrictions on the bank for declaration of dividends. The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of any qualifications by the statutory auditors, which have an adverse bearing on the profit during that year.

In case of any qualification, the net profit should be suitably adjusted while computing the dividend payout ratio.

Bank scrips look up

Our Chennai Corporate Desk adds:

Shares, especially of old generation private sector banks gained significantly on the bourses on Thursday. Many old generation private sector banks have a low capital base. Since the dividend payout ratio would be calculated as a percentage of dividend payable, excluding dividend tax, to net profit during the year, the 40 per cent dividend pay out ratio would translate into higher percentage in respect of dividends because of the low equity capital.

Karnataka Bank hit the upper circuit level of 20 per cent to Rs. 77.95. Lakshmi Vilas Bank went up by 18.3 per cent to Rs. 118.45 and Dhanalakshmi Bank 17.7 per cent to Rs. 28.80. Other significant gainers included KVB, South Indian Bank and Federal Bank.

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