DIPAM Issues Revised Capital Restructuring Norms for CPSEs

  • November 20, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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DIPAM Issues Revised Capital Restructuring Norms for CPSEs

Sub : Eco

Sec: Capital Market

Overview of Revised Guidelines

  • Issued by the Department of Investment and Public Asset Management (DIPAM) on November 18, 2024.
  • Applicable to Central Public Sector Enterprises (CPSEs) from FY 2024-25.
  • Excludes public sector banks, public sector insurance companies, and Section 8 companies (non-profit entities).

Key Provisions on Dividend Policy

  • Minimum Annual Dividend:
    • CPSEs must pay a minimum of 30% of net profit (PAT) or 4% of net worth, whichever is higher.
    • Financial Sector CPSEs (e.g., NBFCs): Subject to the same minimum dividend norms but limited by extant legal provisions.
  • Changes from 2016 Guidelines:
    • Earlier: 30% of PAT or 5% of net worth, whichever is higher.
    • Revised guidelines add specific provisions for financial sector CPSEs.
  • Interim Dividend:
    • CPSEs should consider paying an interim dividend every quarter post-results or at least twice a year.
    • Listed CPSEs are mandated to pay at least 90% of the projected annual dividend as interim dividend(s).
  • Final Dividend Payment:
    • Must be paid soon after the Annual General Meeting (AGM), typically in September.

Share Buyback, Bonus Shares, and Splits

  • Buyback of Shares:
    • CPSEs with the following conditions may consider buybacks:
  1. Market price consistently below book value for the last six months.
  2. Net worth of ₹3,000 crore or more.
  3. Cash and bank balance exceeding ₹1,500 crore.
  • Bonus Shares:
    • CPSEs with reserves and surplus 20 times or more than the paid-up equity share capital should consider issuing bonus shares.
  • Share Splits:
    • Listed CPSEs with market price consistently exceeding 150 times the face value over six months may consider splitting shares.
    • Cooling-off Period: A minimum gap of three years between two share splits.

Application to Subsidiaries

  • Applies to CPSE subsidiaries where the parent enterprise holds more than 51% stake.

Role of Monitoring Committee

  • Committee for Monitoring of Capital Management and Dividend by CPSEs (CMCDC):
    • Chaired by Secretary, DIPAM.
    • Oversees capital management, restructuring, and dividend policies.

Additional Mandates

  • Encourages listed CPSEs to declare interim dividends twice or quarterly to enhance regular payouts.
  • Aligns final dividend payout timelines post AGMs to ensure timely disbursal to shareholders.

Share Buyback

When a company repurchases its own shares from existing shareholders, reducing the total outstanding shares in the market.

  • Purpose:
    • Boost earnings per share (EPS).
    • Improve return on equity (ROE).
    • Provide an exit option to investors if the company believes its shares are undervalued.

Bonus Shares

Free additional shares issued to existing shareholders in proportion to their holdings, funded by a company’s reserves.

  • Purpose:
    • Reward shareholders without using cash.
    • Increase the liquidity of shares in the market.

Stock Splits

Division of existing shares into multiple shares, reducing the per-share price but keeping the total market capitalization unchanged.

  • Purpose:
    • Make shares more affordable for investors.
    • Increase share liquidity.

Example: A company with a share price of ₹1,000 announces a 2:1 split, resulting in two shares priced at ₹500 each.

DIPAM Issues Revised Capital Restructuring Norms for CPSEs economy