NEW DELHI: The continuing accumulation of bad loans, combined with the hit to credit offtake due to the fallout of demonetisation in November, might result in several public-sector banks (PSB) skipping the payout of dividends for the current financial year, according to sources. If many banks skip paying dividends, officials say this could affect the government’s receipts for the year.
According to a senior finance ministry official, some public-sector banks have already informed the ministry that “profits are likely to remain subdued, due to low credit offtake and rising non-performing assets and it may not be possible for them to pay dividends this year”. The official added that as a result, it is expected that revenue from dividend from PSBs is likely to be less than Rs 1,000 crore.
The scenario is not new. For the previous financial year (2015-16), several banks had been unable to pay dividends. Sixteen PSBs, including Punjab National Bank, Bank of Baroda, Canara Bank, Allahabad Bank, Bank of India, Central Bank of India, Corporation Bank, Dena Bank and Syndicate Bank, had skipped paying any dividend in 2015-16, which led to a three-fold decline in government receipts to ~1,444.6 crore.
Only six PSBs, including State Bank of India, declared dividend for the financial year ended March 2016, though at a lower rate. According to finance ministry data, the highest dividend was paid by SBI at Rs 1,214.6 crore, 22 per cent lower than the previous financial year. The government, the majority shareholder in all the public-sector banks, saw a 67 per cent decline in dividend receipts from PSU banks at Rs 1,444.6 crore in 2015-16 against Rs 4,336.22 crore in the previous year.
With gross NPAs of PSBs rising to Rs 6,30,323 crore as on September 30 against Rs 5,50,346 crore in June 2016 and normal banking operations and credit offtake hit hard due to the chaos resulting from demonetisation, PTI quoted analysts as saying that the situation for banks might be worse this year. The deposits currently with banks might cost them money if credit offtake, hit by a fall in consumption, doesn’t recover.
The Reserve Bank of India’s Financial Stability Report in December 2016 recognised this strain, saying: “The GNPA (gross non-performing advances) ratio of scheduled commercial banks increased to 9.1 per cent in September 2016 from 7.8 per cent in March, pushing the overall stressed advances ratio to 12.3 per cent from 11.5 per cent.” Existing guidelines state that profit-making banks have to pay a minimum dividend of 20 per cent of equity or 20 per cent of their post-tax profit, whichever is higher.