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Indian Express
02-07-2025
- Business
- Indian Express
Backed by strong profit growth, PSBs' FY25 dividend transfers up 166% in 4 years
Driven by robust growth in profitability, public sector banks (PSBs) have seen a 166 per cent surge in total dividend payouts to shareholders, including to the government, between 2021-22 and 2024-25. The total dividend paid by state-run banks to shareholders increased from Rs 13,170 crore in 2021-22 to Rs 34,992 crore in the financial year ended March 2025, data compiled by The Indian Express showed. As a result, the central government is also likely to see a jump of 160 per cent in dividend from public sector banks to Rs 22,773.96 crore in 2024-25 from Rs 8,761 crore paid in 2021-22 on account of its majority stake in these lenders. The Centre's stake in PSBs ranges from 57 per cent to 95 per cent as of end-March 2025. Among public sector banks, the government gets the highest dividend from State Bank of India (SBI), the country's largest lender, in which it holds 57.43 per cent stake. In 2024-25, the government is expected to receive Rs 8,149 crore as dividend from SBI. 'The 166 per cent increase in dividends (paid by state-run banks) also has to do with the way profitability has grown. So, if you look at it as a percentage of profit, the dividend distribution rate of public sector banks has been hovering between the 20-22 per cent of net profit,' said Saswata Guha, Senior Director, Financial Institutions (Banks), Fitch Ratings. 'Moreover, the Prompt Corrective Framework also prescribes clear conditions for financial soundness and dividend distribution, which banks must meet to pay dividends. Considering the sector's improved financial health, lenders also satisfy those conditions,' he said. Under the Prompt Corrective Action (PCA) framework, banks have to monitor and maintain certain minimum levels of common equity tier-1 ratio, net non-performing asset (NPA) ratio, and return on assets. Any breach of a risk threshold by a bank results in the invocation of the PCA, which leads to the imposition of a variety of business restrictions. In the last four financial years, state-run lenders' profit rose 144 per cent to Rs 1.78 lakh crore from Rs 73,142 crore in 2021-22. PSBs have become more profitable in the last four years on account of improvement in various financial metrics, including higher loan growth and reduction in NPAs, mainly due to loans being written off, analysts said. 'The improvement in asset quality and capital position after the massive recapitalisation of PSBs by the government has supported their loan book growth as well as earnings leading to consistent increase in dividend payments,' said Anil Gupta, Senior Vice President and Co Group Head – Financial Sector Ratings, Icra Ltd. As of end March 2025, gross NPAs of public sector banks declined to 2.8 per cent from 5.9 per cent as of March 2022, while net NPAs fell to 0.5 per cent from 1.7 per cent, according to the RBI data. Analysts believe state-run lenders may not be able to maintain the pace of dividend transfers to shareholders in 2025-26 due to a likely fall in profitability. The decline in profit may be on account of a lower net interest margin (NIM) following a 100 basis points (bps) reduction in the policy repo rate by the RBI so far in 2025. Whenever there is a reduction in the repo rate, banks' interest income from loans falls immediately, while their interest outgo on deposits readjusts with a lag. This puts pressure on their profit margins. 'As the loan book growth is expected to moderate further in 2025-26, which coupled with pressure on net interest margins is expected to translate in a muted earnings growth for the banking sector, including PSBs,' said Icra Ltd's Gupta. According to a recent report by CareEdge Ratings, NIMs of domestic banks is expected to decline around 20–25 bps in 2025-26 compared to 2024-25 due to a declining interest rate scenario, with yield on advances expected to fall more than the cost of deposits in the current financial year. Overall, profitability of banks may be impacted by around 12-15 bps, with estimated Return on Total Assets of 1.15 per cent in 2025-26, down from 1.34 per cent in 2024-25 due to pressure on NIMs and uptick in credit costs, the CareEdge report said. Banking analysts also said that qualified institutional placement (QIP) by certain public sector lenders — to meet the minimum public shareholding criteria in some cases — will lead to a reduction in the government's stake in these banks, resulting in lower dividend transfers in 2025-26 compared to 2024-25. The country's largest lender, SBI, is in the process of raising up to Rs 25,000 crore through the QIP route. Last month, state-run lender Union Bank of India received board approval to raise up to Rs 3,000 crore of equity capital through public issue or rights issue or private placement, including QIP. 'The moderate growth in earnings for banks coupled with expected dilution in shareholding of government upon the capital raise by few PSBs could translate in muted growth in dividends receipts of the government,' said Gupta from Icra Ltd.
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Business Standard
23-06-2025
- Business
- Business Standard
PSBs' loan growth to outpace private banks in FY26: Fitch Ratings
PSBs' loans grew by 12.4 per cent while private peers lagged with 7.5 per cent in FY25 Mumbai The loan book of public sector banks (PSBs) will continue to swell faster this financial year than that of private peers, which are grappling with asset quality pressures in unsecured portfolios and elevated loan deposit ratios (LDRs), rating agency Fitch said on Monday. PSB's loan book is estimated to grow at 12 to 13 per cent, while private lenders will expand their portfolio by about 10 per cent in the financial year 2026 (FY26), Saswata Guha, senior director, Banks, Fitch Ratings said. PSBs' loans grew by 12.4 per cent while private peers lagged with 7.5 per cent in FY25. 'We expect sector loan growth to rebound to 12 to 13 per cent in FY26 on accommodative monetary policy and easing funding conditions. However, improved deposit mobilisation will be needed to preserve rated banks' nearly 120 basis points (bps) improvement in LDRs in FY25, as deposit growth converged with -- or in some cases exceeded -- lending growth,' it added. Referring to financial profile, Fitch observed the sector reported improved asset quality, stronger capital buffers and stable profitability despite the slowest sector loan growth in four years. Banks can sustain steady performance across most credit metrics in FY26, except for earnings due to cyclical pressures on margins and credit costs. The sector's impaired-loan ratio fell by about 60bp to 2.2 per cent in FY25. Although write-offs and recoveries were lower than in previous years due to a shrinking stock of legacy bad loans, they remained sufficient to largely offset bad loan additions. The private banks reported higher bad loan formation, though all banks saw net improvements. Fitch-rated banks maintained 80 per cent loan loss coverage. The impaired-loan ratios and credit costs for most banks have bottomed. Some banks may still improve given scope for write-offs in legacy bad loans that will further reduce the bad loan stock. This and higher loan growth could reduce the sector's impaired-loan ratio by 20bp in FY26, it added.
