Dividend payouts by banks may take a hit | Economic Times

MUMBAI: Investors in banks have not only bad loans to worry about. The quantum of dividend pay-outs is also under question. While private banks have traditionally been hefty dividend givers compared to public sector peers, the need to conserve cash might force the lenders to be stingy – even without central bank directives.HDFC Bank, the country’s most valuable lender, has already announced its stand that it will skip dividends. ICICI Bank, IndusInd Bank, Axis Bank, and Yes Bank may do likewise as conserving cash might obviate the need for going to investors again for cash in case of more defaults.“There is no regulatory direction curtailing the dividend payment by banks from FY2021 profits. But given the increased uncertainty on asset quality amid the second wave of covid-19, we expect banks to curtail dividend declaration to conserve capital,” said Anil Gupta, vice president at ICRA Ratings.“We also expect that in case the concerns on asset quality increase, regulatory directions in this regard could follow,” he said.In terms of dividend yield, a gauge to assess dividend payments in respect to share prices, Yes Bank, and HDFC Bank are ahead of other banks, show data compiled by ETIG Database. Their dividend yields since FY2011 are in the range of 0.65-1.93%. Banks including Axis, IndusInd, ICICI come next in line in rewarding investors.During 2019-20, banks did not give any dividend complying with the regulatory order. Reserve Bank of India (RBI) had directed all banks not to make dividend pay-outs pertaining to the financial year ended March 31, 2020 as the central bank cited "the ongoing stress and heightened uncertainty on account of COVID-19."“Private sector banks will be more likely to keep the powder dry and focus on conserving capital, which in turn will help ramp up growth when the economy normalises," said Lalitabh Shrivastawa, banking analyst at Sharekhan Broking. "Since the intensity of local lockdowns is still evolving and dynamic, we believe banks and financial Institutions will prefer to have a conservative and pragmatic approach.”“Having adequate provision and capital buffer will help overcome the challenges,” he said.For HDFC Bank, this is the first time in the last one decade at least that the lender, of its own, did not offer any dividend. Even in FY20, it had offered an interim dividend before the RBI barred banks from announcing dividends.The central bank has not yet given dividend payout directions for FY21.“Banks as a capital-intensive business have to prudently hold on to capital,” said Srinath Sridharan, an independent expert in the financial services industry. “In the current economy, listed entities including banks will be looking to avoid or postpone dividend burden. It won’t be surprising if RBI itself comes with a suggestion to banks in this regard.”