Pushed by sturdy progress in profitability, public sector banks (PSBs) have seen a 166 per cent surge in complete dividend payouts to shareholders, together with to the federal government, between 2021-22 and 2024-25.
The overall dividend paid by state-run banks to shareholders elevated from Rs 13,170 crore in 2021-22 to Rs 34,992 crore within the monetary yr ended March 2025, information compiled by The Indian Specific confirmed.
Because of this, the central authorities can be prone to see a leap 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.
Amongst public sector banks, the federal government will get the very best dividend from State Financial institution of India (SBI), the nation’s largest lender, through which it holds 57.43 per cent stake. In 2024-25, the federal government is anticipated to obtain Rs 8,149 crore as dividend from SBI.
“The 166 per cent improve in dividends (paid by state-run banks) additionally has to do with the way in which profitability has grown. So, in case you have a look at it as a proportion of revenue, the dividend distribution charge of public sector banks has been hovering between the 20-22 per cent of internet revenue,” mentioned Saswata Guha, Senior Director, Monetary Establishments (Banks), Fitch Rankings.
“Furthermore, the Immediate Corrective Framework additionally prescribes clear situations for monetary soundness and dividend distribution, which banks should meet to pay dividends. Contemplating the sector’s improved monetary well being, lenders additionally fulfill these situations,” he mentioned.
Below the Immediate Corrective Motion (PCA) framework, banks have to watch and keep sure minimal ranges of widespread fairness tier-1 ratio, internet non-performing asset (NPA) ratio, and return on property. Any breach of a threat threshold by a financial institution ends in the invocation of the PCA, which results in the imposition of a wide range of enterprise restrictions.
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Within the final 4 monetary years, state-run lenders’ revenue rose 144 per cent to Rs 1.78 lakh crore from Rs 73,142 crore in 2021-22.
PSBs have turn into extra worthwhile within the final 4 years on account of enchancment in varied monetary metrics, together with greater mortgage progress and discount in NPAs, primarily resulting from loans being written off, analysts mentioned.
“The development in asset high quality and capital place after the large recapitalisation of PSBs by the federal government has supported their mortgage guide progress in addition to earnings resulting in constant improve in dividend funds,” mentioned Anil Gupta, Senior Vice President and Co Group Head – Monetary Sector Rankings, Icra Ltd.
As of finish March 2025, gross NPAs of public sector banks declined to 2.8 per cent from 5.9 per cent as of March 2022, whereas internet NPAs fell to 0.5 per cent from 1.7 per cent, based on the RBI information.
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Dividend payouts could decelerate
Analysts imagine state-run lenders could not be capable of keep the tempo of dividend transfers to shareholders in 2025-26 resulting from a probable fall in profitability. The decline in revenue could also be on account of a decrease internet curiosity margin (NIM) following a 100 foundation factors (bps) discount within the coverage repo charge by the RBI to this point in 2025.
At any time when there’s a discount within the repo charge, banks’ curiosity revenue from loans falls instantly, whereas their curiosity outgo on deposits readjusts with a lag. This places stress on their revenue margins. “Because the mortgage guide progress is anticipated to average additional in 2025-26, which coupled with stress on internet curiosity margins is anticipated to translate in a muted earnings progress for the banking sector, together with PSBs,” mentioned Icra Ltd’s Gupta.
Based on a latest report by CareEdge Rankings, NIMs of home banks is anticipated to say no round 20–25 bps in 2025-26 in comparison with 2024-25 resulting from a declining rate of interest situation, with yield on advances anticipated to fall greater than the price of deposits within the present monetary yr. Total, profitability of banks could also be impacted by round 12-15 bps, with estimated Return on Whole Property of 1.15 per cent in 2025-26, down from 1.34 per cent in 2024-25 resulting from stress on NIMs and uptick in credit score prices, the CareEdge report mentioned.
Banking analysts additionally mentioned that certified institutional placement (QIP) by sure public sector lenders — to satisfy the minimal public shareholding standards in some instances — will result in a discount within the authorities’s stake in these banks, leading to decrease dividend transfers in 2025-26 in comparison with 2024-25. The nation’s largest lender, SBI, is within the means of elevating as much as Rs 25,000 crore by means of the QIP route. Final month, state-run lender Union Financial institution of India obtained board approval to lift as much as Rs 3,000 crore of fairness capital by means of public problem or rights problem or non-public placement, together with QIP.
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“The average progress in earnings for banks coupled with anticipated dilution in shareholding of presidency upon the capital elevate by few PSBs might translate in muted progress in dividends receipts of the federal government,” mentioned Gupta from Icra Ltd.