Bank of Baroda and Canara Bank are among state-run banks that have been summoned by the finance ministry to discuss higher dividend payouts in an effort to cut fiscal deficit amid fears of shortfall in disinvestment gains. Chiefs of many banks will meet bureaucrats on January 12 to discuss payouts among other things, two people aware of the meeting said.

“The meeting is primarily to gauge the amount of dividend that banks would be in a position to pay for FY11. This will enable the government to draw a more realistic picture of fiscal deficit,” said a public sector bank chairman on condition of anonymity. “At the same time, the government may urge banks to either give interim dividend or ensure 20% dividend payout.”

Dividend payouts by state-run companies are a substantial source of revenue for the government, which is aiming for a 5.5% fiscal deficit despite a windfall Rs 1.3 lakh crore from the spectrum auction. With soaring crude oil prices and unsettled subsidies issue, the government may fall short of the targeted Rs 40,000 crore from disinvestment of shares in state-run companies.

In FY10, PSU banks paid a cumulative dividend of Rs 4,091.75 crore, up from Rs 3,598 crore a year earlier, a study by ETIG showed. Other banks include Punjab & Sind Bank, Indian Bank, Central Bank of India andUnion Bank of India .

For the past few years, the government has instructed PSU banks to pay 20% or more of their net profit as dividend. Since the capital of PSU is relatively small, the government usually prefers to measure dividend payout as a percentage of the net profit. A study by ETIG shows that 10 out of 22 PSU banks have paid dividend lower than 20% of their net profit.

The dividend payout of State Bank of India has been 16% of its net profit while Canara Bank and Indian Bankhave paid 14% and 18%, respectively. Central Bank of India’s dividend payout was 8.5% while Union Bank andDena Bank have paid 13% each. Punjab & Sind Bank has paid 2.5% while Bank of Baroda’s dividend share was 20.5% in March 2010. The highest dividend payout was that of Vijaya Bank at 32% followed by Indian Overseas Bank at 31% of the net profit.

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