Never heard of a bank or NBFC paying dividend to bring down their capital adequacy ratio and I don’t think that’s the case here. If they had too much capital they won’t be borrowing from the market (at a higher rate) while paying dividends from retained earnings. It’s a bad capital allocation. Why not lend excess capital which if done well can be ROE accretive? Or even better, do a buyback that tends to be more shareholder friendly than paying dividends.
One should look at other plausible explanations. I can offer a few without being sure of any but it can be always very instructive to look at such practices from several angles in a bull market.
For example company has not been paying any dividend until couple of years ago and for a profitable company it always raises flags with potential investors. So they started paying 15-16% (by no means very high) dividend which is surely healthy. It could be just coincidence but since they started paying dividend there has been significant increase in both DII and FII holding.
Company’s stock prices has been depressed in this scorching bull market and for many promoters and executives it can be source of stress. I won’t be I won’t be surprised if they announced a QIP.
Also biggest risk with financial institutes is quality of their disclosures. For an auto company you can do several checks outside their books. For a financial company you just rely on their reporting. My rule of thumb in a bull market is to take all the numbers with a pinch of salt.
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