24 December 2015 07:27:38 IST

Dividend payouts should be of strategic biz decisions: RBI tells PSBs

Pattern of dividend payouts not consistent with dividend irrelevance theory, adds RBI

The Reserve Bank of India has said it is imperative that public sector banks (PSBs) approach their dividend decisions as strategic business decisions which are in keeping with their objective of shareholder wealth maximisation.

In its financial stability report, the central bank observed that PSBs pay out significant amount as dividend to the government and other shareholders which have no relevance to their balance sheet strengths and capital planning.

As per Finance Ministry data, the government received dividend aggregating ₹4,000 crore in FY2015 against ₹6,758 crore in the previous financial year.

The RBI said the payout also reveals a cross-subsidisation by better banks (given their relatively higher payouts but a disproportionately higher capital infusion into weaker banks by the government).

This pattern of dividend payouts is not consistent with the dividend irrelevance theory, it added.

In FY2015, the government had infused ₹6,990 crore in nine public sector banks -- State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Syndicate Bank, Allahabad Bank, Indian Bank, Dena Bank, and Andhra Bank.

In FY2016, ₹12,000 crore has been provided for bank capitalisation. The government also proposes to make available ₹70,000 crore out of budgetary allocations for four years.