Indian Bank dropped 4.5% to an intra day low at Rs.332; it has recovered since to rs.340 levels but remains firmly in the red.
The Bank, in what can be called as a prudent move, decided to withdraw the dividend of Rs.6/share which it has recommended on 10th May when it had announced its Q4FY18 performance.
With a declining net profit and poor asset quality, a dividend would have been a largesse and it is good that the Bank showed the courage to withdraw it. Why spend on what you cannot afford?
The Bank had ended the quarter with a 59% (YoY) drop in net profit at Rs.132 crore as its bad loans went up three times.
As per Section15 (1) of Banking Regulation Act, no banking company shall pay any dividend on its shares until all its capitalized expenses (including preliminary expenses, organization expenses, shares-selling commission, brokerage, amounts of losses incurred and any 'other item of expenditure not represented by tangible assets) have been completely written off.
As per RBI circular the following options were given in respect of MTM losses and additional liability on Gratuity:
• Option to spread 'mark to market' loss on AFS & HFT investments for quarter ended December 31, 2017 and March 31, 2018, equally over the four quarters commencing with the quarter in which the loss is incurred.
• Permitted Banks to spread additional liability on account of the enhancement in gratuity limit from Rs. 10 lakhs to Rs. 20 lakhs from 29.03.2018 under Payment of Gratuity Act, 1972, over four quarters beginning with the quarter ended March 31, 2018.
The Bank has exercised the options during the quarter ended 31.03.2018 and deferred the Gratuity expenditure of Rs. 24.33 croreto subsequent three quarters and also spread the MTM losses of total Rs. 547.01 crore to subsequent quarters (after providing for December 2017 and March 2018).
Considering the above, the matter was taken up with appropriate authorities seeking permission for declaration of dividend. RBI has informed that Bank can declare dividend after fully providing for MTM loss, Gratuity and any other provisions staggered in terms of dispensation given by RBI to all the Banks.