Only three of the 19 listed public sector banks and two of the 18 listed private sector banks will qualify for autonomy in declaring dividends without seeking prior Reserve Bank of India approval.
Based on 2002-03 data, the three eligible PSBs are Andhra Bank, Corporation Bank and Vijaya Bank, and the two private sector banks are HDFC Bank and Kotak Mahindra Bank.
All others will have to seek RBI approval before they can declare dividends. This is based on the banks' financial results for the last three years up to 2002-03.
More banks could qualify and some may even drop out if they fail to meet the RBI's two criteria for autonomy on declaring dividends.
As per the RBI fiat, banks will have the autonomy to declare dividends without its prior approval only if they have a capital-to-risk-weighted-assets ratio of at least 11 per cent in the preceding two completed years and the accounting year for which they propose to declare dividend.
In addition, their net non-performing assets to net advances ratio should be less than three per cent.
These changes mark a change in the regulatory focus from quantum of dividends to the dividend payout ratio.
The measures are also designed to protect the weak banks from getting into a suicidal dividend war with their peers.
The central bank further said that banks will be eligible to pay dividends without obtaining its prior approval once these two prudential requirements are met and that the dividend payout ratio does not exceed 33.33 per cent of the current year's net profit.
If a bank's bottomline includes any extraordinary profits/income, the payout ratio shall be computed after excluding such extraordinary items for reckoning compliance with the prudential payout ratio ceiling of 33.33 per cent.
Major PSBs such as the Bank of Baroda, Bank of India, Canara Bank, Punjab National Bank, State Bank of India, Union Bank of India, and big private sector banks such as ICICI Bank, IDBI Bank, IndusInd Bank, ING Vysya Bank, and UTI Bank among others, do not qualify for exemptions.
Even though most of these big banks meet that minimum 11 per cent CRAR criteria, their ratio of net NPAs to net advances is outside the 3 per cent limit, often by a thin margin.
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