Indian Bank drops plan to pay 60% dividend

MUMBAI: Indian Bank, one of the only two public sector lenders to declare a profit in FY2018, has withdrawn its proposal for a dividend. The move comes after it turned out that the bank’s profit was only because of a dispensation that allowed it to spread bond losses over four quarters. Under current laws, lenders cannot declare a dividend if they have not fully provided for capitalised expenses.

Last month, the board of directors — after approving the bank’s profit & loss account — recommended a dividend at the rate of Rs 6 per share (60%). The lender had declared a full-year profit of Rs 1,259 crore for FY18 and a profit of Rs 132 crore for Q4FY18. 

However, a dividend payout would not have been in keeping with the Banking Regulation Act. In terms of section 15(1) of the legislation, a bank can pay a dividend until all its capitalised expenses (including losses incurred) have not been completely written off.

Indian Bank had made use of a special dispensation allowed by the RBI in April 2018 in respect of bond losses and additional liabilities toward gratuity. Banks were allowed to spread the marked-to-market (MTM) losses arising out of depreciation of bond portfolio across four quarters. Similarly, lenders were allowed to spread additional liability on account of the doubling of gratuity limit to Rs 20 lakh over four quarters.

Indian Bank had exercised these options and spread the Rs 547-crore MTM losses on its bond portfolio across subsequent quarters. It had also deferred the gratuity expenses of Rs 24 crore across three quarters. Had the bank not spread the bond losses and deferred gratuity expenses, it would have in all likelihood reported a loss in Q4.

The other state-owned lender to declare a profit — Vijaya Bank — had also declared a dividend of 1.2%. However, the bank had not exercised the option to spread its MTM loses or its additional liability towards gratuity. TOI