PSU Bonus, Dividend To Stock Split —Finance Ministry Revises CPSE Payment Guidelines

The Finance Ministry of India on Monday revised its 2016 guidelines with regard to dividend payment, share buyback and bonus issuances by Central Public Sector Enterprises. The move follows CPSEs’ strong balance sheet and improved market capitalisation over the past few years.

As per the revised guidelines issued by the Department of Investment and Public Asset Management or DIPAM, every CPSE would pay a minimum annual dividend of 30% of PAT or 4% of the net worth, whichever is higher.

Financial sector CPSEs like NBFCs may pay a minimum annual dividend of 30% of profit, subject to the limit. The revised guidelines shall be effective from the current financial year 2024-25.

Earlier guidelines required CPSE to pay a minimum annual dividend of 30 per cent of PAT or 5 per cent of the net worth, also there were no separate mention of financial sector.

The objective is to Enhance Value of CPSEs and Returns of Shareholders, DIPAM said while outlining the details.

On share buyback, if CPSE market price of the share has been consistently lower than book value for last six months, and having net worth of 3,000 cr or cash balance is 1500 cr may consider buy back shares.

Earlier rule was that those having net worth of at least Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore were required to opt for share buyback.

Bonus shares are to be issued if the defined reserves and surplus of CPSEs is equal to or more than 20 times of its paid up equity share capital. Earlier it was 10 times of the paid up equity capital

New guidelines also suggest that if CPSE market market exceeds 150 times its Face Value in last six month should consider splitting off shares, however there should be a cooling off period of at least 3 years between two share split.

Revised Guidelines also emphasizes on interim dividend said that CPSES may consider paying an interim dividend every quarter after quarterly results, or at least twice a year.

It also mandated all listed CPSEs to pay at least 90 per cent of the projected annual dividend in one or more instalments as interim dividends.

The final dividend of the last fiscal may be paid soon after the AGM is over in September of every year.

Guidelines to also apply to subsidiaries where parent holding is more than 51%, it noted.

Notably, the guidelines do not apply to PSBs, insurance firms and other Entities who are prohibited from distribution of profits under Companies Act.

DIPAM underlined that all issues regarding capital management/restructuring of CPSEs will be discussed in the inter-ministerial forum called the Committee for Monitoring of Capital Management and Dividend by CPSEs, chaired by Secretary DIPAM.

The finance ministry had, in May 2016, issued comprehensive guidelines on 'Capital Restructuring of CPSEs in 2016 for efficient management of government investment in CPSEs.

As per the existing guidelines, CPSE is required to pay a minimum annual dividend of 30% of profit or 5% of the net worth. Also, every CPSE having a net worth of at least Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore was required to opt for share buyback.

Also, bonus shares are to be issued if the defined reserves and surplus of CPSEs are equal to or more than 10 times their paid-up equity share capital.

Notably, the combined market capitalisation of CPSEs, banks, and insurance companies has grown over 500% in the past three years.

In the ongoing financial year, the government projected to collect Rs 56,260 crore as a dividend from public sector enterprises.