The low dividends paid by PSBs to the government can be primarily attributed to low profitability and higher provisioning for bad loansNew Delhi: Public sector banks (PSBs) have given the Centre a total dividend of Rs 300 crores only so far, way below the target fixed by the government for the fiscal year that concluded on March 31. This is despite the fact that the government had set a low target for PSBs payout for the concluding fiscal. A source in the finance ministry said, “For the last fiscal year (FY19) the government had already set a low target for dividend payout from the PSBs. Still, the collection is far below the estimated target. The Centre has received only dividend worth Rs 300 crore so far from the PSBs.”
The source added that the government had estimated dividend payouts to be around Rs 6,140 crore in FY19.
Why has the dividend payout been low?
The low dividends paid by PSBs to the government can be primarily attributed to low profitability and higher provisioning for bad loans. Moreover, to purge the banking sector of non-performing assets, the Reserve Bank of India (RBI) placed a number of banks in the strict prompt corrective action (PCA) framework.
“Even though the ministry managed to pull many banks out of the Prompt Corrective Action (PCA) through continuous capital support, the banks have not completely recovered and are weak on capital ratios. So, there is pressure to maintain free reserves, which had turned negative in last few quarters. This has resulted in low dividend payouts,” the official said.
Dividend payouts by PSBs have traced a continued downward trajectory since FY14-15 when it paid the Centre Rs 6,940 crore in total. In FY16, it reduced further to Rs 2,347 crore and a major chunk of this amount was contributed by the State Bank of India (SBI) alone — Rs 2,018 crores. The dividend payout improved a little in FY17, where four PSBs, led by SBI, contributed Rs 2,879 crore.
However, in FY18, the dividend payout saw a dramatic decline as only two lenders — Indian Bank and Vijaya Bank — managed to pay Rs 444 crore to the government.
PSU Watch is a business news brand of 27 Frames Communications LLP. It places the spotlight on PSUs, Governance, Bureaucracy, Defence and Public Policy as the sector traverses through a period of radical change.