Public Sector Banks expected to pay Rs.15,000+ crore dividend to government this year

According to sources, Public Sector Banks (PSBs) are projected to pay a dividend exceeding Rs 15,000 crore for the financial year ending in March 2024. This is driven by their enhanced profitability during the initial three quarters of the current fiscal year. In fact, the combined profit of all 12 PSBs during these three quarters amounted to Rs 98,000 crore, which is only Rs 7,000 crore less than their total profit for the entire fiscal year of FY23.

PSBs Achieved Highest-Ever Combined Net Profit in FY23

During FY23, PSBs achieved their highest-ever combined net profit of Rs 1.05 lakh crore, surpassing the Rs 66,539.98 crore earned in the fiscal year 2021-22. As a result, the government received a dividend of Rs 13,804 crore, marking a 58% increase from the previous fiscal year’s dividend payout of Rs 8,718 crore. Given the expectation of higher profits in the current financial year, the dividend payout to the government is also anticipated to be higher for FY24. Sources suggest that based on past records, the dividend payout for FY24 should exceed Rs 15,000 crore.

Proposed Guidelines for Dividend Declarations by Banks

In January, the Reserve Bank of India (RBI) released draft guidelines proposing changes to the eligibility criteria for banks to declare dividends. The proposed guidelines suggest that banks with a net non-performing assets (NPAs) ratio of less than 6% would be allowed to declare dividends. The current norms, last updated in 2005, require banks to have an NPA ratio of up to 7% to become eligible for dividend declaration.

The RBI’s draft guidelines are expected to come into effect from FY25 onwards. These guidelines outline the directions that banks’ boards should follow when considering proposals for dividend payouts. One important consideration is the divergence in classification and provisioning for NPAs.

Minimum Capital Adequacy Requirement for Dividend Declaration

As per the circular, a commercial bank must have a minimum total capital adequacy of 11.5% to be eligible for declaring dividends. This requirement ensures that banks maintain a sufficient level of capital to support their operations and absorb potential losses.

These proposed guidelines aim to establish a more robust framework for dividend declarations by banks, taking into account their financial health, asset quality, and capital adequacy.