Rising bad loans, pressure on margins force public sector banks to prune dividend

The dividend dream stoked by the interim dividend payments by public sector banks since the beginning of January has soured, with many of the high paying banks skipping the final or limiting payouts in the recently concluded financial year compared to the 2012-13 fiscal.

In contrast, many of the big-ticket private sector banks have upped their dividend payments for the previous fiscal compared to 2012-13 as their balance sheets present a healthier picture vis-a-vis many of their PSU rivals. However, some of the public sector banks have kept their dividend payouts at or close to their previous year’s levels. Public sector banks, which had, like PSUs, announced liberal interim dividends in January although it was evident that with growing NPAs, pressure on margins and poor off-take of loans, sustaining high dividend payouts as in earlier years might be tough.

These fears have now proved to be true as many of the high dividend payers like Corporation Bank, Bank of India, PNB and State Bank of Travancore (SBT) have either skipped the final dividend or pruned the payouts to conserve resources to the chagrin of their shareholders. Corporation Bank has cut its dividend payment for 2013-14 to just about a third of the previous fiscal (2012-13). The bank, which paid an interim dividend of ₹4.50, has announced a final dividend of ₹2.25, taking the total payment to ₹6.75 for 2013-14 compared to ₹19 in 2012-13.

Another big disappointment was Punjab National Bank. The bank, which paid an interim dividend of ₹10, has decided against making any further dividend payout for last year. This was a far cry from the payment of ₹27 per share that the bank had paid in 2012-13.

Bank of India had halved the dividend payout to ₹5 for last year from ₹10 in the previous year by treating the interim dividend of ₹5 as final. SBT was another PSU bank to make a huge cut in dividend payouts for last year. The bank, which paid ₹2.50 as interim dividend, did not make any final payment. The bank’s dividend payment for 2012-13 was ₹20 per share. Two banks made marginal cuts in their dividend payouts for last year compared to the earlier fiscal. Oriental Bank of Commerce (OBC) had kept the total payout at ₹7.60 per share compared to ₹9.20 in 2012-13. IOB, which had slashed dividend payment even during 2012-13 when it paid ₹2/share, cut the dividend further in 2013-14 to ₹1.20/ share.

Even in such a gloomy scenario for PSU bank investors, there were some bright spots. Canara Bank, which had paid an interim dividend of ₹6.50, announced a final dividend of ₹4.50, taking the total payout for last year to ₹11, close to what it had paid in 2012-13 (₹13). BoB, which came out with good numbers, kept the dividend payout unchanged at ₹21.50 for 2013-14, same as in the previous year. The decision of many PSU banks to slash dividend was in sharp contrast to the action of some of the major private banks. Axis Bank has upped the dividend to ₹20/share from ₹18 that it had paid in 2012-13; ICICI Bank has announced a dividend of ₹23 for last year, ₹3 more than in the earlier year; HDFC Bank has decided to dole out a dividend of ₹6.85 a share (face value ₹2) as against ₹5.50 in 2012-13 and YES Bank hiked the dividend to ₹8 for last year from ₹6 in the earlier fiscal.

All eyes are now focused on what SBI will decide to do. The bank paid an interim dividend of ₹15 per share and what would be its decision on final dividend, if any, would be keenly watched when its board meets to finalise results on May 23. It paid ₹41.50 in 2012-13.