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C. Shivkumar

BANGALORE, Feb. 22

PUBLIC sector financial institutions are likely to miss the target for dividends payable to the Government for the current financial year.

This year, a dividend income of Rs 10,809.50 crore has been estimated to accrue from these institutions. This amount includes dividends from public sector banks, insurance companies, development financial institutions and the Reserve Bank of India.

Financial institutions are expected to miss the target on account of provisions for non-performing assets. NPA liabilities are likely to mount during the current year. For institutions like IDBI, guarantee liability alone in the case of the Dabhol Power Company is in excess of Rs 1,500 crore.

Besides, several middle- and bottom-rung corporates have begun building up overdue payments on debt servicing to the public financial institutions and banks, triggering concerns over potential provision requirements.

Besides, both DFIs and banks have been facing shortfalls in credit offtake. Further there has also been a substantial fall in lending rates last year without any commensurate fall in the cost of average working funds. This, in turn, has shrunk the spreads of all the lending institutions ,leading to a smaller than expected interest income increase or in some cases, a fall.However, the offsetting factor is that all the banks will not be making provisions for depreciation on investments during the year. This is because most of their investments have appreciated in value, with most of the profits coming from treasury operations.

But a portion of the profits is to be credited to a separate investment fluctuation reserve. The issue that is dogging the industry is the accounting treatment of such a reserve. Bankers are still ascertaining whether the distributable surplus should be created after netting for this reserve.

Further, the tax treatment of this reserve is also not very clear. This is because the Central Board of Direct Taxes has no provisions for tax exemptions on investment fluctuation reserve. Consequently, tax liabilities are likely to see a quantum jump, thereby shrinking the distributable surpluses.

As for insurance companies, this year has been the worst since nationalisation. Gross premium income is likely to show a growth of just three - five per cent. Besides, investment income has also shrunk, along with the sliding yields. A part of the profits generated through aggressive treasury operations had also been taken away by the high claims during the year, both from motor and non-motor sectors, industry sources said.

Further, insurance companies are also in the process of assessing the expenditure in the event of a potential voluntary retirement scheme for all categories of employees. Within the insurance sector, during the year, there has been an escalation in expenditure without any concomitant increase in income. This, in turn, is likely to shrink the profitability of all PSU insurance companies and thereby the distributable profits, industry sources said.

Only the RBI is likely to maintain or increase its dividend record during the current year despite the bleak outlook. For the financial year 2000-01, RBI had transferred Rs 9,350 crore to the Government, which included Rs 1,479 crore as interest differential on securities.

Exclusive of the interest differential, the RBI's dividend contribution amounted to about 77 per cent of the surpluses of the Rs 10,199.52 crore paid by all the financial institutions and banks.

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