Govt. revises norms for Dividend payout, Bonus Shares, Stock split, and Share buybacks

The Department of Investment and Public Asset Management (DIPAM) released new guidelines amending its earlier2016 rules to better reflect market realities. “These guidelines have been done keeping in mind the realities of the market and forward looking”, said the secretary of DIPAM. The new guidelines will be applicable from the current financial year ending March 31, 2025.

Minimum Dividend Payout Obligation:

Public sector undertakings (PSU) must now pay 4% of their net worth as a minimum annual dividend, compared to the earlier 5%.

The central public sector enterprises (CPSEs) classified as non-banking financial companies (NBFCs) under the minimum annual dividend payout norm of 30 per cent of profit after tax (PAT) or 4 per cent of the net worth, whichever is higher.

 “lt is clarified that cash and bank balances of some CPSEs may be high due to receipt of advance and milestone payments. Therefore, cash and bank balances for the purpose of buyback, shall mean own cash i.e. cash holdings minus the advances received from clients for project work. For assessing the net worth of a CPSE, general reserves and surplus plus paid-up share capital of the CPSE are required to be used,” the latest guidelines said.

Issue of Bonus shares:

The new guidelines adds that, every CPSE (Central Public Sector Enterprises/PSU) may consider the issue of bonus shares when their defined reserves and surplus are equal to or more than 20 times of its paid-up equity share capital, that is doubling the earlier requirement of 10 times.

 “lf any CPSE seeks an exemption from issuing bonus shares, the proposal will be examined by Committee for Monitoring of Capital Management and Dividend (CMCDC) for advice,” it added. Committee for Monitoring of Capital Management and Dividend (CMCDC) will be chaired by the DIPAM secretary with representation from administrative ministries.

The Ministry of Finance further said that the revised guidelines on capital restructuring of CPSE will be duly reviewed not later than three years for aligning the policy with advancements in the Capital Market/regulatory and sectoral changes and for addressing any other concerns of CPSEs.

Stock splits:

The norms for stock splits have also been revised significantly:

The market price of a PSU’s share must now be at least 150 times its face value, compared to the earlier 50 times. Further, there must be cooling off period of a minimum gap of three years between two successive share splits.

The guidelines also noted that supersession of all guidelines issued earlier splitting of shares will be considered on a case to case basis.

Guidelines for Share Buybacks:

Companies whose share price has been less than its book value for the past six months have a net worth of ₹3,000 crore and a cash balance of ₹1,500 crore may consider the option of buyback shares. The existing limits for share buybacks were a net worth of at least ₹2,000 crore and cash and bank balance of ₹1,000 crore.

The Ministry of Finance further said that the revised guidelines on capital restructuring of CPSE will be duly reviewed not later than three years for aligning the policy with advancements in the Capital Market/regulatory and sectoral changes and for addressing any other concerns of CPSEs.