State-run banks have had a good year. Now for the dividends.
- PSU Banks have seen a tidy rally, but central government wants that to convert into dividend
The central government may seek higher dividends from state-owned banks in the next fiscal year on the back of their strong performance, while dividend from the Reserve Bank of India (RBI) may be on similar levels or a tad lower than the record high of the current fiscal, two people aware of the matter said.
Public sector banks (PSBs), which have received capital infusion from the government and executed various reform initiatives over the years, have seen marked reduction in bad loans and rising advances.
Profits reported by state-owned banks have crossed ₹98,000 crore in the first three quarters of 2023-24, and are expected to exceed ₹1.3 trillion by its end.
In fact, a record RBI dividend of ₹87,416 crore in 2023-24 helped the Centre revise its budget estimates. “One of the reasons we were able to target 5.8% (fiscal deficit) during 2023-24, from earlier projections of 5.9% was the more than expected dividend received from RBI," the second person mentioned above said on the condition of anonymity.
In comparison, during 2022-23, the RBI dividend stood at ₹30,307 crore, while the actual non-tax receipts stood at ₹2.85 trillion).
“The Centre expects to reach the non-tax receipt target for 2024-25 even if the RBI dividend is not as high as last year, through other combinations," the second person mentioned above said.
“This would include higher dividends from state-owned banks that have reported huge profits in recent quarters and are expected to perform well in the coming quarters," the person added.
Interestingly, the government expects non-tax receipts of ₹3,99,701 crore (about ₹4 trillion) in 2024-25, according to the interim budget documents. For 2023-24, budget estimates for the non-tax receipts were revised to ₹375,795 crore ( ₹3.76 trillion) from ₹301,650 crore ( ₹3.02 trillion) in the budget estimates due to the higher-than expected RBI dividend.
Spokespersons of the finance ministry and RBI didn’t respond to emailed queries.
“Public sector banks have done very well so far this fiscal; so, a high dividend from these banks can be expected," said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd. “We also expect dividends from oil marketing companies to be high during 2023-24," Arora added.
In a recent interview, financial services secretary Vivek Joshi said the performance of the banking sector may remain strong even in the next fiscal. “The government does not have a plan to directly dilute its equity in banks and raise money for itself. We will see this at a later stage. Our rewards from the banks will be in the form of dividends," he had said.
As things stand, the government expects ₹1.04 trillion dividend from the RBI, state-owned banks and state-backed financial institutions in 2023-24, and ₹1.02 trillion during 2024-25, according to the interim budget 2024-25 document.
Budget estimates for 2023-24 for dividends from RBI, state-owned banks and state-backed financial institutions stood at ₹48,000 crore ( ₹ 0.48 trillion).
During 2022-23, the dividend received by the Centre from RBI stood at ₹30,307 crore ( ₹0.30 trillion), while the total dividend received by the central government from RBI, state-owned banks and state-backed financial institutions during the fiscal stood at ₹39,961 crore (about ₹0.40 trillion).
The Union government didn’t give a break-up of the dividends received from state-owned banks and state-backed financial institutions in the budget.
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