PSBs want lower FY23 dividend payouts, look to shore up capital

State-owned banks have urged the government to lower their dividend payout for this financial year as they are looking to shore up their capital, said people familiar with the development.

The government expects banks to pay dividends on the lines of central public sector enterprises, which pay 30% of the profit after tax or 5% of the net worth, whichever is higher.

According to two bank executives aware of the developments, banks have sought relief on the quantum of payout.


The issue was discussed at a meeting at February-end between senior bank representatives and government officials, said one of the bankers, adding that further discussions were on with the government.

"Given the current stress in the global banking sector, it is important that banks have that extra capital to absorb any systemic shocks," said another banker, who did not wish to be identified.

In 2019-20, the Reserve Bank of India (RBI) did not permit banks to pay any dividends due to the pandemic. The regulator allowed banks to pay dividends on equity shares from the profits for 2020-21, subject to the quantum of the dividend being not more than 50% of the amount determined as per the dividend payout ratio.

As per the revised estimates for 2022-23, the government has pegged ₹40,953 crore as a dividend from the RBI and public sector financial institutions, down from the previously budgeted ₹73,498 crore.

Any relief on this count could have some implications for the Centre's fiscal deficit for 2022-23, pegged at 6.4% of GDP, with disinvestment receipts already under pressure.

Profit of PSB is expected to be about ₹1 lakh crore by the end of this fiscal, up from ₹66,539 crore last year.

Some lenders have argued that banks should have a buffer capital of at least 2% above the minimum capital to risk-weighted assets (CRAR), which is around 11.5% after including capital conservation buffer (CCB), said a banker.

As per the RBI's projections, under the baseline scenario, the aggregate CRAR of 46 major banks is projected to slip to 14.9% by September 2023 from 15.8% in September 2022.

The country's largest bank, State Bank of India, had a capital adequacy ratio of 13.27% in December 2022. In the December quarter, the lender posted its highest-ever quarterly net profit of ₹14,205 crore.

"Under existing regulations, it is the bank board that decides on the dividend payout in accordance with the existing guidelines by the RBI," said one of the persons cited earlier, adding that as the majority stakeholder the government may also have some expectations given that all banks have posted record profits.