Govt may ask PSUs to pay higher dividends | Mint
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Business News/ News / India/  Govt may ask PSUs to pay higher dividends
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Govt may ask PSUs to pay higher dividends

It may also seek special dividends from state-run oil companies, which have reported bumper profits because of soaring crude prices

The government will decide how much it wants from these companies after reviewing the September and December quarter earnings of PSUs. (Mint)Premium
The government will decide how much it wants from these companies after reviewing the September and December quarter earnings of PSUs. (Mint)

NEW DELHI : The government may demand higher dividend payouts from state-run companies should it miss revenue targets because of sluggish tax collections or lower-than-expected asset sale proceeds, two people familiar with the matter said.

It may also seek special dividends from state-run oil companies, which have reported bumper profits because of soaring crude prices, one of the two people said. However, the plans will depend on the movement of crude oil prices in the coming months and the profitability of these firms.

Also, share buybacks may be sought from select public sector undertakings (PSUs) with substantial cash reserves and significant government shareholdings depending on market conditions.

The government will decide how much it wants from these companies after reviewing the September and December quarter earnings of PSUs, the person said, adding that the companies might be asked for higher dividends in the March quarter.

“The performance of PSUs, including banks, has been very strong in the first and second quarters. There are expectations of strong financial performance from public sector enterprises even during the ongoing quarter, which falls during the festive season. The decision to seek higher dividends will depend on the market conditions," the second person said, also on the condition of anonymity.

“The movement of crude oil prices will also be a factor in considering special dividends from government-run oil companies. If oil breaches the $95-100 barrel mark, it will put more cost pressure on the oil marketing companies, especially if the prices (it offers to consumers) remain unchanged. Then the oil companies may be unable to make higher dividend payouts," the person added.

A query sent to the finance ministry on Sunday morning remained unanswered.

The BSE PSU Index, comprising 55 state-run entities, including 12 banks, has risen 27.6% over the past year, driven by robust earnings.

The government’s share of dividends from public sector companies is projected to remain steady at 43,000 crore for 2023-24, according to the Union budget. Additionally, dividend and surplus payouts from the Reserve Bank of India, state-run banks and financial institutions are expected to be 48,000 crore for 2023-24, compared with 40,953 crore in the revised estimates for the previous fiscal.

“There is definitely a case for the government to ask for more non-tax revenue linked to dividends in companies where it is the majority shareholder, as the government finances may be running short from its failure to meet the divestment target," said a senior economist with a leading public sector bank.

Mint had on 20 August reported that the proposed sale of the government’s stake in IDBI Bank is unlikely to happen this fiscal posing a challenge to the Centre’s ability to meet the 51,000 crore disinvestment target for the year.

Apart from this, the Centre also planned to sell its stake in Shipping Corp. of India Ltd, BEML Ltd and Container Corp. of India Ltd during the year, though it has had limited success so far.

Meanwhile, in 2020, the finance ministry’s department of investment and public asset management advised central government-backed public sector enterprises to follow a consistent dividend policy and strive to pay higher dividends considering factors like profitability, capex requirements, cash/reserve and net worth.

The guidelines state that CPSEs must pay a minimum annual dividend of 30% of profit after tax or 5% of net worth, whichever is higher. There are over 60 dividend-paying PSUs and about a dozen public sector banks.

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Published: 29 Oct 2023, 11:59 PM IST
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