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Santanu Saikia
New Delhi, June 3: The finance ministry wants a revamp of the profit sharing and dividend paying policy in all undertakings in which the Government has substantial shareholding. These include the three development financial institutions, General Insurance Corporation (GIC) and its subsidiaries, all nationalised banks and central public sector undertakings (PSUs).
It has rooted for a switch to a sector-wise profit-sharing formula and segmented dividend payment criteria for all PSUs.
In a meeting with top North Block officials presided over by finance secretary Vijay Kelkar last week, the ministry has decided to ask for maximum 25 per cent share in the profit after tax of PSUs as standard payout criteria. But sector-wise profit sharing norms, depending upon profits generated, are also to be laid down.
The ministry plans to fix a Rs 1000-crore additional mobilisation target for the next fiscal by demanding higher payouts from its undertakings. The estimated profit and dividend income in the current year,including surplus profits of the RBI, is Rs 9482 crore.
While profit sharing is the norm with banks, GIC and its subsidiaries and the three DFIs, PSUs share their profits with the Government by way of dividends. The ministry claims that the percentage profit share can be translated in terms of dividend on a proportional basis on equity held by the Government.
The ministry is willing to grant exceptions to the 25 per cent ceiling on a a sectoral and case-by-case basis. Since the payout policy of an individual corporate entity is not always a function of profit after tax, North block is willing to accept a lower return on equity in case internally generated funds are required to finance genuine expansion projects. Similarly, certain sectors may not be able to provide the high 25 per cent share.
The ministry is expecting opposition from PSUs and administrative ministries to its new proposal. The argument against laying down a specific dividend payment criteria is that a corporate entity should be providedthe freedom to chose its own payout policy without having to think of contributing to the government's resource kitty.
The ministry claims that the payout policy of several public sector banks, FIs and a host of PSUs, some operating in the infrastructure sector, is not aligned with their profitability patterns and the anamoly needs to be rectified even though the aggregate figures do show that gross payout is roughly 20 per cent of the overall net profit. Public sector banks provide a measly 384 crore share of total profits while LIC and GIC contribute only 264 crore.
North block sources said that the proposals would be discussed with other ministries and taken to the cabinet, if necessary. A cabinet nod is, however, not a requirement for laying down a new dividend policy. An administrative fiat is enough.
Move may boost revenues
Increasing the dividend payout from Government companies is a thinly-veiled attempt at raising flagging Government revenues. The idea may sound good on paper, but thecompanies paying up will be the exception rather than the norm as most, with the exception of wholly-owned entities such as the insurance companies, will seek an exemption under the proposed norms. In case of listed Government companies with a minority shareholder interest, a dividend payout becomes a sensitive corporate finance tool, where the company signals its immediate potential. By being forced to hike its dividend payout it could send out wrong signals to minority shareholders.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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