The Hindu Business Line : New dividend norms may hit banks

THE recent RBI regulations on dividend payout will not only hit banks with high NPAs but also those not carrying extra capital. About 20 banks out of a list of 57 public and private banks do not meet the stipulated capital adequacy levels for automatic dividend declaration.

Some bank chiefs feel the new norms are unwarranted and that the central bank should do a rethink. Said a banker, "It is in the bank's interest to clean up its asset book and bring the net NPAs below 3 per cent, but why should banks carry excess capital above the minimum capital adequacy ratio (CAR) of 9 per cent. The RBI's stand on this is unwarranted.''

According to a Motilal Oswal report, banks have already cleaned up their books significantly and would be reporting NPAs less than 3 per cent in the financial year 2004. But most of the banks will take a hit on account of less than 11 per cent CAR in the financial year 2002. Banks are hoping that this can be negotiated with RBI.

Mr G.V. Nageshwar Rao, Managing Director & Chief Executive Officer, IDBI Bank, said, "The new norms do not mean that the banks that do not meet the stipulated criteria cannot declare dividend. They will just have to take permission from the Reserve Bank.''

IDBI Bank does not mean the capital adequacy norms that states that for a bank to declare dividend without the RBI nod, the net NPA should be below 3 per cent and the capital adequacy should be above 11 per cent for two previous accounting years and in the year for which the dividend is proposed.

IDBI Bank, which proposed a 12.5 per cent dividend prior to the recent regulatory changes, has approached RBI for permission since its CAR was at 9.59 per cent in March 2002, 9.56 per cent in March 2003 and 10.40 per cent in March 2004.

"RBI seems to be readying banks for the Basel II norms which prescribes risk-based capital," said Mr K. Unnikrishnan, Senior Vice-President, Policy, Indian Banks' Association.

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