Banks are paying hefty dividends to their shareholders in recent times. In 2009-10, dividend payment of 32 banks increased 18.2%, with the dividend payout ratio rising in 2009-10 as against 2008-09.

The Reserve Bank of India (RBI) has raised the cap on banks? dividend payout ratio from 33.33% to 40%. The aggregate total net profit of 32 banks have increased by 15.8% to Rs 44,831 crore in 2009-10 from Rs 38,704 crore in 2008-09. Total equity dividend grew to Rs 8,640 crore from Rs 7,312 crore during the study period, raising the equity dividend to net profit ratio to 19.27% from 18.89%. However, no banks exceeded the RBI norm of ratio.

In 2009-10, top five banks in terms of dividend payout ratio were ICICI Bank, Karnataka Bank, IOB, Andhra Bank and Vijaya Bank. Among these, significant increase was registered by Vijaya Bank.

Among the 32 dividend-paying banks for 2009-10 and 2008-09, 23 raised the rates of dividend, three reduced and six maintained the same level. Among them, those who raised their dividend payment significantly are Corporation Bank, Bank Of Baroda, Allahabad Bank, Vijaya Bank and State Bank of Travancore.

The rate of dividend of Bank of Baroda (BoB) increased to 150% during 2009-10 from 90% during 2008-09. This can be explained from the performance of the bank. Net profit of the bank increased by 37.3% to Rs 3,058 crore in 2009-10 from Rs 2,227 crore. But the dividend payout ratio rose to 17.93% from 14.83% during the study period.

According to the directors? report, BoB had delivered a strong performance in 2009-10 in the backdrop of widespread turbulence in the global financial markets as well as a slowdown of economic growth in India. The bank?s management had attributed the improvement in the bank?s productivity to a sharper focus on technology and greater leverage from current branches.

One of the key positives has been the bank?s ability to manage asset quality in the current environment. Gross NPL ratio and net NPL ratio of BoB as of March 2010 were at 1.4% and 0.35%, respectively, with a provision coverage ratio of 75%.

State Bank of India increased its dividend payment marginally by 3.4% during 2009-10.The dividend payout ratio of the bank also rose to 20.78% from 20.19%. In terms of dividend payout ratio, Bank of India also fared well, registering a growth of 21.14% in 2009-10 from the year ago 13.99%.

An opposite trend was seen in Canara Bank, Central Bank Of India, Andhra Bank, Kotak Mahindra Bank, Karur Vysya Bank and IndusInd Bank. For example, the dividend payout ratio of IndusInd Bank dipped from 30.14% in 2008-09 to 21.09% last fiscal. Out of 32 banks, the highest and lowest rate of dividend was seen by State Bank of Hyderabad and Kotak Mahindra, respectively.