Downturn To Hit Dividend Payout?

Less firms declared divided this year, and with a lower payout ratio, even as earnings come under strain.

The aggregate dividend payout by corporate India may be lower in the current financial year (2011-12), compared to 2010-11.
Only 75 companies had declared an interim dividend in the first half of the current financial year, as compared to 107 in 2010-11.

Moreover, the payout by these companies declined to 32 per cent of net profit, as compared to 40 per cent at the same time last year.

And, a 27 % decline in the second quarter of 2011-12 indicates earnings for the third and fourth quarter may be worse.

The study by the Business Standard Research Bureau estimates the total dividend payout at Rs 7,285 crore (Rs 72.85 billion) by 75 companies in the first six months, compared to Rs 7,290 crore (Rs 72.90 billion) by 107 companies in the corresponding period of last year.

Though the aggregate payout remains almost unchanged, the payout ratio has dropped to 32 per cent from 40 per cent in the previous year.

The payout ratio dropped, as noted earlier, despite a 22.3 per cent rise in net profit of the 75 dividend-paying companies in the first half, compared to a 12.3 per cent rise in net profit of the 107 companies doing so in the same period last year.

It is usually when companies earn handsome profits that they reward shareholders with dividends. If one goes by the huge losses of Rs 37,151 crore (Rs 371.51 billion) by 562 companies in the first two quarters, the corporate payout will be significantly lower this year.

Already, domestic and foreign brokerages have downgraded Sensex earnings by a little over 10 per cent for both 2011-12 and 2012-13 due to growth concerns, a depreciating currency and interest rates.

Reflecting the downturn in investment climate and lower confidence, foreign institutional investor investment has come down to a trickle.

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Source: www.rediff.com/slideshare

Is It Time To Worry - Bankers Are Stressed?

The financial sector is beginning to bear the brunt of deteriorating quality of corporate debt. The corporate debt restructuring (CDR) mechanism set up to help companies unable to repay liabilities has gone up over six times in the first six months of FY 12.

Bankers expect things to worsen in the next two quarters. A State Bank of India executive said, "The slowdown in growth and pressure from rising interest costs may substantially increase the number of cases referred to the CDR forum in the third and fourth quarters of FY12."

In fact, concerns over asset quality topped the agenda for pre-policy review discussions bankers had with the Reserve Bank of India last week. Bankers requested they be allowed to recast CDR accounts for a second time for companies or units whose debt was reworked after the financial crisis in 2008.

According to the CDR Forum, a platform set up by banks and financial institutions, cases worth Rs 34,562 crore went for debt restructuring in the first half of the financial year compared to just Rs 5,179 crore in the year-ago period. The number of companies referred has risen from 21 to 35.

In December 2008, the RBI had allowed banks to again restructure debt of viable units with lowering status of account, as a one-time measure.

Bankers said there were a number of reasons for more companies being referred to CDR. For one, many have been unable to bear the burden of rising interest costs. These units are already under pressure of high input costs and lack of overseas demand.

Referring a company to CDR eases the restructuring process. A senior executive with the Bank of Baroda said, "The bank or financial institution is able to control slippages by taking early action. But, this restructuring comes at the cost of higher provisioning."

According to RBI norms, banks have to make a provision at two per cent for the restructured account, which is treated as standard asset. For a normal standard loan, provisioning is made at 0.4 per cent, which puts pressure on the bottom line.

The references in April-September 2010 had declined due to a better business environment. Some companies, which would have landed at CDR, were able to repay on time.

Rating agency in its September report said banks' gross non-performing assets (NPAs) ratio was expected to increase to nearly three per cent by March 31, 2012 from 2.3 per cent a year ago.

The significant increase in interest rates over the past 18 months will adversely impact the asset quality and profitability of India's banks.

Source: Business Standard

Gold – A hot property suddenly?

The credit growth may be slowing as a result of sharp rise in interest rates and gold buying may have become a costly affair but with the increase in the worth of the gold, financing companies and banks are witnessing a significant rise in their portfolio of loan against gold.

One of the very famous financial companies has witnessed a five-fold increase in the retail loan portfolio from Rs 3,000 crore in March, 2009 to over Rs 15,000 crore in March.

Another one witnessed a 120 per cent rise in its gold loan disbursement in the quarter ended June from Rs 3,111 crore in the quarter ended June 2010 to Rs 6,858 in June 2011.

All financial companies are expecting a rise of 40-50 per cent in its retail loan portfolio. Market players say that there has been a change in the perception about gold loans and that has helped in the growth.

Sources reveal, As organised players have moved to rural areas and small towns there has been a substantial shift from the unorganised players to the organised players. Also, over the last few years, substantial advertising and entry of PSU banks and private banks in this businesses is giving it more and more respectability.

A rise in the interest rate of personal loans between two and three percentage points over the last one year as a result of rising interest rates and several banks reducing their exposure to personal loans is also working to the gold loans advantage.

“Over the last one year, if the gold prices have gone up by over 40 per cent, the value of loan per gram of gold has risen between 25-30%. Given the current rise in prices, gold loan companies are careful about the loans advanced.

Source: http://www.financialexpress.com/new
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Have You Written Your Will Yet?

When do you think should an individual write a will? People do not write the 'Will' or plan to write the will after attaining the age of 50/60 years.

80% people depart for heavenly abode without writing their will resulting in various avoidable complications hardship for their successors, few of which are narrated here below:

1. Distribution of assets:  In absence of Will, the assets cannot be distributed as per the choice of individual as it governs by the provisions of Personal Law/ Indian Succession Act/Hindu Succession Act/ Muslim Personal Law.

2. Exhaustive legal process:   Obtaining the Succession Certificate/ Execution of Will consume the time from 6 to 12 months.

3. Expensive:  Apart from the time, there is expenses incurred for legal process viz. 8 to 10% Court Fee, advocate fee and other incidental expenses.

4. Disruption in family:  In absence of specific Will, there is instances sourness amongst the family members.

5. Deprivation from assets:  Sometimes the successor is not aware with the details/ whereabouts of the assets and deprived from his right.

6. Tax planning:  In absence of Will the beneficiary cannot plan out their Tax liability or may not avail the tax concessions available to them.

Most of the individuals do not opt for making the Will just because they do not possess many assets or under the impression that they have already made the nomination.  No doubt the nomination is a great help to successors but the Nominee can hold the assets only in the capacity of trustee.  In such a case the nominee has to pass the assets to its successors.

And so it will be prudent to write the Will in addition to nomination.You have all the rights and privileges over your assets during your life time even after you have written your Will.  In other words the contents of will are effective only after your death and your assets are safe during your life time.

You can write your Will, provided you have attained the age of 18 and mentally sound in the eyes of Law.

Source: http://www.moneycontrol.com/news
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