Chapter - 1: "Dividend Policy Under Taxation System - A Case Study of Banks in Maharashtra"

“Dividend Policy under Taxation System – A case study of Banks in Maharashtra”
CHAPTER -1
INTRODUCTION
The study of dividend policy under taxation policy explores the impact of taxes on dividend
policy. There is also the link of taxation and impact it exudes on the formulation of the
dividend policy. To find out the relationship between taxes and dividend is the basic
objective of this study. Dividend, profit and taxes are the interdependent variables of an
organization. To find out the interdisciplinary nature is very important to formulate the
effective and efficient dividend policy. The analysis of the study show a significant
correlation between taxes and dividend structure of the banks and suggests that profit is the
major variable in the formation of dividend policy of the organizations.
This project is related with the two most important policies i.e. dividend policy used by bank
and the taxation policy of bank. This project poses a significant importance in the banking
sector as it is emphasized on three most important interrelated factors like profit, tax and
D.B.A.R,S.S.G.M.C.E,Shegaon Page 1
dividend. The relationship between tax and dividend has been well quoted in this project. The
total duration for which the project has been in force is between March2008 – March2010.
All the aspects of dividend and taxation policy have been covered and exemplified in detail
in this project making it a viable project for assessment and review and formulate efficient
dividend policy. The concept interrelationship between profit, tax and dividend and its
impact pragmatically results into achieving effective and efficient dividend policy so as to
achieve desired level of profit. The project supplicates the reader with a practical view of
understanding the concepts of dividend and taxation policy and profit planning in the most
simplified and lucid manner complete with miniscule details. All the aspects required for
honing one’s skills in getting an eagle eye’s view of effective dividend policy under taxation
policy in a banking sector has been covered in depth in this project.
The investigator is doing research for knowing that what the relationship between taxes and
dividend is. And also know what the impact of taxation policy on dividend policy and profit
in banking sector is. The banking sector is of interest in this research is because of the
structure of its dividend as revealed in the study.
1.1 Meaning of Dividend Policy :
The word "dividend" comes from the Latin word "dividendum" meaning "thing to be
divided". When a corporation earns a profit or surplus, that money can be put to two uses: it
can either be re-invested in the business (called retained earnings), or it can be paid to the
shareholders as a dividend. Many corporations retain a portion of their earnings and pay the
remainder as a dividend. Dividends are usually paid to owners or shareholders of business at
specific periods. This is apparently based on the declared earning of the company and the
recommendations made by its directors. Dividend is allocated as a fixed amount per share.
Therefore, a shareholder receives a dividend in proportion to their shareholding. Dividends
are usually paid in the form of cash, store credits and shares in the company (either newly
created shares or existing shares bought in the market.)
Forms of dividend payment:
Cash dividends: These are those paid out in currency, usually via electronic funds transfer or
a printed paper check. Such dividends are a form of investment income and are usually
taxable to the recipient in the year they are paid. This is the most common method of sharing
corporate profits with the shareholders of the company.
Stock or scrip dividends: These are those paid out in the form of additional stock shares of
the issuing corporation, or another corporation (such as its subsidiary corporation). They are
usually issued in proportion to shares owned. If the payment involves the issue of new
shares, it is similar to a stock split in which it increases the total number of shares while
lowering the price of each share without changing the market capitalization.
Property dividends: These are those paid out in the form of assets from. They are relatively
rare and most frequently are securities of other companies owned by the issuer.
Other dividends: These can be used in structured finance. Financial assets with a known
market value can be distributed as dividends; warrants are sometimes distributed in this way.
For large companies with subsidiaries, dividends can take the form of shares in a subsidiary
company.
There are two metrics which are commonly used to gauge the sustainability of a firm's
dividend policy.
Payout ratio is calculated by dividing the company's dividend by the earnings per share. A
payout ratio of more than 1 means the company is paying out more in dividends for the year
than it earned.
Dividend cover is calculated by dividing the company's cash flow from operations by the
dividend.
Dividend policy is thought to convey information to shareholders about a firm’s future

prospects as perceived by management. A cut in dividends is often interpreted as
management’s view that the outlook for earnings was insufficient to sustain the previous
level of dividends that the firm had paid. Similarly, an increase in dividends is often
interpreted to mean that management views the firm’s future prospects positively enough to
believe that a higher level of dividends can be maintained into the future. A divergent view
of dividend increases and decreases relates to the investment opportunities of the firm.
The dividend policy is primarily concerned with the decisions regarding dividend payout and
profit retention by companies. The capital gain is the tax paid on profit made on sale of
shares or stocks.
Several factors must be considered when establishing a firm’s dividend policy. These
include:
 The liquidity position of the firm.

 Need to repay debt.
 The rate of asset expansion.
 Control of the firm.
1.2 Meaning of Taxation Policy:
The word "tax" comes from the Latin word "taxo" meaning "I estimate". Tax is a financial
charge imposed or other levy upon a taxpayer (an individual or legal entity) by a state or the
functional equivalent of a state such that failure to pay is punishable by law. Taxes consist of
direct tax or indirect tax, and may be paid in money. Direct taxes may be adjusted to the
individual characteristics of the taxpayer, whereas indirect taxes are levied on transactions
irrespective of the circumstances of buyer or seller. A tax may be defined as a "pecuniary
burden laid upon individuals or property owners to support the government or a payment
exacted by legislative authority. A tax is not a voluntary payment or donation, but an
enforced contribution, exacted pursuant to legislative authority and is any contribution
imposed by government whether under the name of toll, tribute, tallage, gabble, impost, duty,
custom, excise, subsidy, aid, supply, or other name. In modern taxation systems, taxes are
levied in money. Tax collection is performed by a government agency. Money provided by
taxation has been used by states and their functional equivalents throughout history to carry
out many functions such as expenditures on war, the enforcement of law and public order,
protection of property, economic infrastructure (roads, legal tender, enforcement of contracts,
etc.), public works, social engineering, and the operation of government itself. Governments
also use taxes to fund welfare and public services. These services can include education
systems, health care systems, pensions for the elderly, unemployment benefits, and public
transportation. Energy, water and waste management systems are also common public
utilities.
Colonial and modernizing states have also used cash taxes to draw or force reluctant
subsistence producers into cash economies. Governments use different kinds of taxes and
vary the tax rates. This is done to distribute the tax burden among individuals or classes of
the population involved in taxable activities, such as business, or to redistribute resources
between individuals or classes in the population. Historically, the nobility were supported by
taxes on the poor; modern social security systems are intended to support the poor, the
disabled, or the retired by taxes on those who are still working.
In addition, taxes are applied to fund foreign aid and military ventures, to influence the
macroeconomic performance of the economy (the government's strategy for doing this is
called its fiscal policy; see also tax exemption), or to modify patterns of consumption or
employment within an economy, by making some classes of transaction more or less
attractive. Taxation policy has four main purposes:
 Revenue: Taxes raise money to spend on armies, roads, schools and hospitals, and on more
indirect government functions like market regulation or legal systems.
 Redistribution: Redistribution refers to transferring wealth from the richer sections of society
to poorer sections.
 Repricing: Taxes are levied to address externalities.
 Representation: Taxation generates the greatest degree of accountability and better
governance.
An important feature of tax systems is the percentage of the tax burden as it relates to income
or consumption. The terms progressive, regressive, and proportional are used to describe the
way the rate progresses from low to high, from high to low, or proportionally. The terms
describe a distribution effect, which can be applied to any type of tax system (income or
consumption) that meets the definition. A bank tax or bank levy is a proposed tax on banks.
Optimal taxation policy is the branch considers how taxes can be structured to give the least
deadweight costs, or to give the best outcomes in terms of social welfare.
When profits are made, the company is obligated to pay corporate tax including other
statutory taxes to the government. This is an essential corporate responsibility particularly
profit making companies. The taxes no doubt reduce the profits available at the disposal of
the organizations, either to be retained or distributed as a dividend to shareholders of the
company. In nutshell, taxation policy is the allocation of government revenues and other
spending decisions. It minimizes any distortion of economic decision making within the
economy.
1.3Relationship between Taxation and Dividend policy:
Dividends are usually paid to owners of the firm or shareholders of business at specific
periods. This is apparently based on the declared earning of the company and the
recommendations made by its directors. Thus, if there are no profits made, dividends are not
declared. But when profits are made, the company is obligated to pay corporate tax including
other statutory taxes to the government. This is an essential corporate responsibility
particularly profit making companies. The taxes no doubt reduce the profits available at the
disposal of the organizations, either to be retained or distributed as a dividend to shareholders
of the company. For decades, several postulations and assumptions have been made
regarding whether such taxes paid by organizations actually affect their pattern of dividend
policy. Dividend policy is the trade-off between retaining earning and paying out cash or
issuing new shares to shareholders. Some firms may have low dividend payout because
management is optimistic about the firm’s future and therefore wishes to retain their earnings
for further expansion. It is hard to deny that taxes are important to investors.
Although, dividend affects the shareholders tax liability, it does not in general alter the taxes
that must be paid regardless of whether the company distributes or retains its profit (Brealey,
Myers & Marcus 1999). Conscious of these assumptions, surrounding dividend policy and
this study is directed at evaluating the effects of taxes on the dividend policy of banks in
Maharashtra.
The relationship between taxation policies focuses on the profit variable and suggests that
profit is a major variable in the formation of dividend policy of the organizations. For
decades, several postulations and assumptions have been made regarding whether such taxes
paid by organizations actually affect their pattern of dividend policy. Dividend policy is the
trade-off between retaining earning and paying out cash or issuing new shares to
shareholders. The relationship explores three dimensions of the firm as profit, dividend and
tax which are interrelated and interdependent to each other. The Modigliani & Miller (M&M)
(1961) theory, which classified investors into dividend clientele. It was later found in a later
research that tax is responsible for marginal alterations in the portfolio composition rather
than the major differences predicted by Miller & Scholes (1978).
When the M&M theory was postulated, the conclusion that tax had a marginal effect on
dividend policy with surprise (Baker, Powell & Veit, 2001) was greeted by many of the
financial experts. Other models such as tax adjusted model, Masulis & Trueman (1988)
Model of cash payments, Farrar & Sewlyn (1967) Model of after tax income of investors,
Auerbach (1979) Model of shareholders wealth and Akerlof (1970) Signal Model,
information asymmetric theories, Jensen (1986) free cash flow hypothesis, Feldstein and
Green (1983) theoretical dividend behavioral models and Shefrin & Statman (1984) theory of
self control are all measure to unmask firms dividend policy.
In a similar study of banks dividend payout, Casey and Dickens (2000) implored Rozeff
(1982) model to examine dividend payout factors in which he found five variables to be very
significant in dividend payout policies of firms. The variables include beta, percentage of
insider ownership, past revenue growth rate, forecasted revenue growth and the number of
common stockholders. Those variables are equally very useful in articulating dividend
policies of banks. Chang and Rhee (1990) added that financial leverage is a crucial factor in
dividend policy of firms. A firm that has a high financial leverage tends to have a high
dividend payout ratio. This however depends on the tax chargeable on the dividend income
being higher than the capital gains.
The relationship between the taxation and dividend policy can be well affected by the profit
variable. Profit variable form the connecting link between dividend policy and taxation
policy. In other words, how much the bank will earn, how much it will distribute as dividend
and how much it will pay as a tax, is all about the relationship between dividend policy and
taxation policy.
1.4 Introduction to Banking system:
A bank is a financial intermediary and appears in several related basic forms such as central
bank which money on behalf of a government, and regulates the money supply, commercial
bank which accepts deposits and channels those deposits into lending activities and savings
bank which allows to borrow and save from members of a financial cooperative. The core
function of banking sector is microcredit. Banking is generally a highly regulated industry in
India, and government restrictions on financial activities by banks have varied over time and
location. The word bank is coined from Old Italian word banca, which means bench, counter.
Benches were used as desks or exchange counters. The major functions of a bank are as:
 conducting current accounts

 paying cheques and
 collecting cheques
Banks provide almost all payment services, and a bank account is considered indispensable
by most businesses, individuals and governments. Banks borrow most funds from households
and non-financial businesses, and lend most funds to households and non-financial
businesses. A bank can generate revenue in a variety of different ways including interest,
transaction fees and financial advice. The main method is via charging interest on the capital
it lends out to customers. The bank profits from the differential between the level of interest it
pays for deposits and other sources of funds, and the level of interest it charges in its lending
activities. This difference is referred to as the spread between the cost of funds and the loan
interest rate. Historically, profitability from lending activities has been cyclical and
dependent on the needs and strengths of loan customers and the stage of the economic cycle.
Fees and financial advice constitute a more stable revenue stream and banks have therefore
placed more emphasis on these revenue lines to smooth their financial performance.
Banking in India originated in the last decades of the 18th century. The Reserve Bank of
India, India's central banking authority, was nationalized on January 1, 1949 under the terms
of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b). In
1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India
(RBI) “to regulate, control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or branch of an existing bank
could be opened without a license from the RBI, and no two banks could have common
directors. Banks face a number of risks in order to conduct their business, and how well these
risks are managed and understood is a key driver behind profitability, and how much capital
a bank is required to hold. Some of the main risks faced by banks include:
 Credit risk: risk of loss arising from a borrower who does not make payments as
promised.
 Liquidity risk: risk that a given security or asset cannot be traded quickly enough in
the market to prevent a loss (or make the required profit).
 Market risk: risk that the value of a portfolio, either an investment portfolio or a
trading portfolio, will decrease due to the change in value of the market risk factors.
 Operational risk: risk arising from execution of a company's business functions.
The capital requirement is a bank regulation, which sets a framework on how banks and
depository institutions must handle their capital. The categorization of assets and capital is
highly standardized so that it can be risk weighted. Despite the provisions, control and
regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI,
continued to be owned and operated by private persons. By the 1960s, the Indian banking
industry had become an important tool to facilitate the development of the Indian economy.
At the same time, it had emerged as a large employer, and a debate had ensued about the
nationalization of the banking industry.
The economic functions of banks include:
1. Issue of money, in the form of banknotes and current accounts subject to cheque or
payment at the customer's order. These claims on banks can act as money because they are
negotiable or repayable on demand, and hence valued at par. They are effectively
transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the
payee may bank or cash.
2. Netting and settlement of payments – banks act as both collection and paying agents for
customers, participating in interbank clearing and settlement systems to collect, present, be
presented with, and pay payment instruments. This enables banks to economize on reserves
held for settlement of payments, since inward and outward payments offset each other. It also
enables the offsetting of payment flows between geographical areas, reducing the cost of
settlement between them.
3. Credit intermediation – banks borrow and lend back-to-back on their own account as
middle men.
4. Credit quality improvement – banks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes
from diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. However, banknotes and deposits are generally
unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding
it needs to continue to operate, this puts the note holders and depositors in an economically
subordinated position.
Currently, banking in India is generally fairly mature in terms of supply, product range and
reach-even though reach in rural India still remains a challenge for the private sector and
foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government.
1.5 Introduction to taxation System In India:
The taxation policy in Maharashtra is structured to reflect the nature of the business.
Depending on the type of business, taxes are levied on businesses on an annual basis. This
implies that all businesses, organizations and taxable persons are obligated to make a tax
return to the Inland Revenue. Profits arising from transactions of companies constitute
taxable income following their assessment to tax. This also includes personal income tax,
which is duly imposed on individuals by the relevant tax authority in the territory where the
company has its principal office or the place of business on the first day of the year of
assessment or year of commencement of business. The state Board of Internal Revenue is
responsible for the administration and collection of the relevant tax in while the Federal
Inland Revenue is charged with the responsibility of the company and other related taxes.
These structures are governed by the Personal Income Tax Act (PITA, 1993) and Company
Income Tax Act (CITA, 1994). The taxation system in Maharashtra is prudently organized in
order to effectively enhance the collection of taxes and reduce the incidence of tax evasion
and the subsequent loss of revenue to the government.
The tax laws therefore provides for the collection of taxes at source of the taxpayer’s income.
This is achieved through the Withholding tax system, which allows taxes to be deducted at
the source of income. This is provided in sections 63 of CITA and 72 of PITA; where the
laws recommend that income tax assessable on any company, whether or not an assessment
has been made, shall if the Board (the relevant tax authority) so directs, be recoverable from
any payments made by any person to such company. The income tax recovered under the
provisions of the law by deduction from payments made to a company or person is usually
set-off for the purpose of collection against tax charged on the company or individual by an
assessment. This is however only to the extent that the total of the deductions does not
exceed the amount of the assessment and in case of a company, the deduction is limited to
the period in which the payment relates (CITA, 1994).
The implications of the above provisions of the tax laws have been summed up by as follows:
• The provisions are applicable to both individuals and companies who are liable to tax.
• It is not limited to any particular source of income with specific reference to those
mentioned in the CITA.
• Any tax deducted at source on withholding tax basis is regarded as payment on the account
and it is set-off against any tax assessed, due and collectible from the company or individual.
The tax laws provide that where a dividend or such other distribution becomes due from a
taxpayer; person or company, payable by a company in Maharashtra to any other company or
to any person, the company paying such dividend or making such distribution shall on the
date when the amount is paid or credited, whichever comes first, deducts tax at the rate
specified in the Act and shall forthwith pay over to the relevant tax authority the amount so
deducted (CITA, section 62 and PITA, section 70).
The banking system in Maharashtra has undergone several reformatory processes. The
Reserve Bank of India (RBI) regulates all the banks, which is the apex bank in the country.
The 1969 banking decree required all banks to be locally incorporated and to publish their
balance sheets on their banking business only in Maharashtra. There are also other
regulations, which are aimed at stabilizing the indigenous banks for their long-term existence
and committing the foreign banks more into the country’s economic improvement.
The peculiar aspect of the taxation of banks is that in addition to the company tax payable at
the normal rate of 30%, banks are required to pay the excess profit levy. This is a levy of
10% on the excess profit of the bank, which was introduced in 1978.
However, with effect from 1989-tax year, the excess profit levy tax became 15%.
CHAPTER: 2
BANKS’ PROFILE
The banks selected are based on the number of branches across the thirty-six states in the
country. The banks have at least a branch in each state of the country and are grouped in the
new generation banks whose financial statements are publicly available. They also have
employees numbering over eight hundred and fifty each.
ANDHRA BANK
Andhra bank was established on 20th November, 1923. Andhra Bank has now attained a
status with a total business of up to Rs.105280 Carores. There are 1586 Andhra Bank
branches that cover 22 states and 2 Union Territories. Andhra Bank branches are function
under core banking platform. There are 14292 employees working in Andhra bank. The
profit per employee is rupees 7.32 lakh. Andhra Bank is operating with Core Banking
Solution (CBS).
ALLAHABAD BANK
Allahabad bank was established on April 24, 1865. Allahabad bank has now attained a status
with a total business of over Rs.1, 00,000 crores. There are 2231 branches of Allahabad bank
covered by 44 zonal offices. Allahabad Bank branches are function under core banking
platform. There are 20959 employees working in Allahabad bank. The profit per employee is
rupees 5.76 lakh. Allahabad Bank is operating with Core Banking Solution (CBS).
AXIS BANK
Axis Bank was incorporated in the year 1994 as first private sector Bank in India by a group
of administrators of UTI, LIC, GIC and other 4 PSU insurance companies with a capital of
Rs. 115crores in which 100crores was invested by UTI. Later UTI renamed itself as Axis
Bank. Axis Bank branches are extended to more than 1019 in number. Axis Bank became the
first Indian Bank to successfully issue Foreign Currency Hybrid Capital in the International
Market. Axis Bank today is capitalized to the extent of Rs. 359.76 crores with the public
holding (other than promoters) at 57.79%. Axis Bank is one of the few Banks that offer Zero
Balance Account. There are 1019 branches of Axis bank. There are 21640 employees
working in Axis bank. The profit per employee is rupees 12.00 lakh.
BANK OF BARODA
Bank of Baroda is the third largest public sector Bank in India which was incorporated with
an initial investment of Rs.10lakhs on 20th July, 1908. There are 3028 CBS Bank of Baroda
branches all over India which covers 70% of the network and 91.64% of the business. There
are 3088 branches of Bank of Baroda bank. There are 38960 employees working in Bank of
Baroda bank. The profit per employee is rupees 8.00 lakh.
BANK OF MAHARASHTRA
Bank of Maharashtra was established on September 16, 1935. There are 1495 branches of
Bank of Maharashtra. There are 13673 employees working in Bank of Maharashtra. The
profit per employee is rupees 3.21 lakh.
CANARA BANK
Canara bank operates in four segments: treasury operations, retail banking operations,
wholesale banking operations and other banking operations. There are 3135 branches of
Canara bank. Canara Bank branches are function under core banking platform. There are
43380 employees working in canara bank. The profit per employee is rupees 7.35 lakh.
CENTRAL BANK OF INDIA

Central Bank of India is one of the oldest commercial banks of India, nationalized by the
Government of India, in the year 1969. Central Bank of India has a strong presence in the
country with 3702 branches and more than 250 extension counters nationwide. There are
32140 employees working in Central Bank of India. The profit per employee is rupees 3.30
lakh.
FEDERAL BANK LIMITED

Federal Bank Limited was founded as Travancore Federal Bank Limited in the year 1931,
with an authorized capital of Rs. 5000 with an authorized capital of Rs. 5000.Federal bank
has 699 branches. There are 7896 employees working in Federal Bank. The profit per
employee is rupees 6.01 lakh.
HDFC BANK
HDFC (Housing Development Finance Corporation Limited) is India’s leading housing
finance company since its commencement in the year 1977. With its headquarters in
Mumbai, the HDFC Bank has a network of 1,129branches across the country. All the
branches spread over 550 cities are linked on an online real-time basis. HDFC Bank runs in a
highly automated surrounding in terms of information technology and communication
systems. There are 51,888 employees working in HDFC bank. The profit per employee is
rupees 5.98 lakh.
ICICI BANK LIMITED

ICICI Bank was originated in the year 1955 in India as financial institution. Nearly after 10
decades of its inception, ICICI started Banking Corporation in the year 1994 and was named
as “ICICI Bank Limited”. In India, ICICI Bank covers a network of 1717 branches and over
4816 ICICI Bank in 18 countries. All ICICI Bank branches are fully computerized with
online facility. There are 35256 employees working in ICICI Bank. . The profit per employee
is rupees 12.00 lakhs.
IDBI BANK LIMITED

IDBI (Industrial Development Bank of India), the 4th largest Bank in the overall ratings, was
established in the year 1964 as a subordinate of RBI. IDBI Bank is gradually increasing its
deliver platform and as on April 2010, IDBI Bank has 705 branches. As on 31st March, 2010
total employee strength of the Bank was 12213. There are 462926 employees working IDBI
Bank. The profit per employee is rupees 8.44 lakh.
INDIAN BANK
Indian Bank, the foremost bank opened by The Government of India was founded on 15th of
August, 1907. The bank became a nationalized bank along with 13 other financial units in
1969. Indian Bank has bagged 1st prize for excellence in performance under SHG Bank
linkage for 2007-08 by NABARD. Indian Bank has 1762 branches across the country
excluding 240 overseas correspondent banks in 70 countries. There are 19641 employees
working Indian Bank. The profit per employee is rupees7.92 lakh.
INDIAN OVERSEAS BANK

Indian Overseas Bank famously called with its acronym IOB was established on February 10,
1937. All Indian Overseas Bank branches are working under Core Banking Platform. Indian
Overseas Bank has a network of over2089 branches. There are 26892 employees working in
Indian Overseas Bank. The profit per employee is rupees 2.63 lakh.
INDUSIND BANK LIMITED

The idea behind IndusInd Bank, named after the Indus Valley civilization, was conceived by
Mr. Srichand P. Hinduja, the head of the Hinduja Group. The operations of IndusInd Bank
were started with a capital base of Rs. 1,000 million. IndusInd Bank operates in a diverse
range of businesses, which include Corporate Banking, Retail Banking, Treasury and Foreign
Exchange, Investment Banking, Capital Markets, Non-Resident Indian (NRI) / High
Networth Individual (HNI) Banking and Information Technology (through a subsidiary).It
has 230 branches. There are 5383 employees working in IndusInd bank. The profit per
ING VYSYA BANK

ING Vysya Bank is formed by combining Vysya Bank Ltd, a leading private sector Bank and
ING of Dutch during the year 2002. Vysya Bank was a year old Bank started in the year
1930 and had increased its financial status gradually till 2002. ING Bank was established
in1990. At present there are more than 300 ING Vysya branches are available all over India
with its headquarters in Bangalore. ING Vysya Bank employs 6113 employee. The profit per
KARNATAKA BANK
The Karnataka Bank was established on February 18, 1942. Karnataka Bank has 486
branches and has working 5244 employees. The profit per employee is rupees 3.00 lakh.
KRUR VYSYA BANK

The Karur Vysya Bank which is famously called as KVB was incorporated in the year 1916.
The Karur Vysya Bank has now become a leading financial institution which offers services
to millions of customers. The Karur Vysya Bank covers a network of 312 branches and has
4175 employees. The profit per employee is rupees 8.05 lakh.
KOTAK MAHINDRA BANK LIMITED

Kotak Mahindra Bank was founded in the year 1985 as ‘Kotak Capital Management Finance
Ltd’. A year later, was renamed as ‘Kotak Mahindra Finance Ltd’. Kotak Mahindra Bank has
a net value of about Rs.6, 799crores and covers a network of branches, franchisees,
representative offices and satellite offices across cities and towns in India. The Bank also has
offices in six more countries in the World. The group serves more than 6.4 million
customers. The bank as 257 branches and has 8632 employees. The profit per employee is
rupees 7.00 lakh.
LAKSHMIVIKAS BANK LIMITED

The Lakshmi Vilas Bank Limited (LVB) was founded in 1926. Lakshmivikas bank has 279
branches and has 2675 employees. The profit per employee is rupees 1.13 lakh.
ORIENTAL BANK OF COMMERCE

Oriental Bank of Commerce is an India-based bank. The Company operates in four
segments: treasury operations, corporate/wholesale banking, retail banking and other banking
business operations. Oriental bank of commerce has 1559 branches and has 15358
employees. The profit per employee is rupees 7.39 lakh.
PUNJAB AND SIND BANK

The Punjab and Sind bank was founded in 1895 in Lahore. Punjab and Sind bank has 897
branches and has 8259 employees. The profit per employee is rupees 6.00 lakh.
PUNJAB NATIONAL BANK

Punjab National Bank (PNB) is an Indian commercial bank. It is India's second largest bank.
Government Of India has more than fifty percent of share of the management of this bank.
This is a very large bank having its branches all over the country as well as in foreign country
like Dubai,London, Bengkok etc. Economically also this bank is among top five strongest
bank in the country.Punjab National Bank (PNB) has 4971 branches and has 53417
STATE BANK OF INDIA

State Bank of India began with the establishment of the Bank of Calcutta in Calcutta, on 2
June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2 January
1809. State Bank of India (SBI) has 13039 branches and has 200299 employees. The profit
per employee is rupees 4.46 lakh.
The State Bank Group includes a network of eight banking subsidiaries and several non-
banking subsidiaries. Through the establishments, it offers various services including
merchant banking services, fund management, factoring services, primary dealership in
government securities, credit cards and insurance.
The eight banking subsidiaries are:
 State Bank of Bikaner and Jaipur (SBBJ)

 State Bank of Hyderabad (SBH)
 State Bank of India (SBI)
 State Bank of Indore (SBIR)
 State Bank of Mysore (SBM)
 State Bank of Patiala (SBP)
 State Bank of Saurashtra (SBS)
 State Bank of Travancore (SBT)
SYNDICATE BANK
Established in the year 1925, Syndicate Bank had its first office in the coastal region of
Karnataka, Udupi. It was then named as 'Canara Industrial & Banking Syndicate Ltd'. The
bank with its socio-economic aim was making extensive growth and advancement and
entered Foreign Exchange business by opening Foreign Exchange Department at Bombay. In
1964, the bank changed its name to 'Syndicate Bank Limited' and the head office was also
shifted from Udupi to Manipal. Syndicate bank has 2426 branches and 25569 working
UNION BANK OF INDIA
Union Bank of India was inaugurated by the Father of the Nation, Mahatma Gandhi, on
November 11, 1919. With the age of global banking, Union Bank of India also changed its
style, boasting of urbanized and computerized core banking systems.
A front runner among public sector banks in modern-day banking, it has all the facilities that
a modern bank should have - internet banking and centrally computerized branches. Union
Bank of India has 2926 offices and 29419 employees. The profit per employee is rupees 7.47
lakh.
UNITED BANK OF INDIA

Originally established as United Bank of India Ltd., the bank was a result of merger of four
Bengali banks - Comilla Banking Corporation Ltd., Bengal Central Bank Ltd., Comilla
Union Bank Ltd. and Hooghly Bank Ltd. in 1950. Presently the Bank has a three-tier
organizational set-up consisting of the Head Office, 28 Regional Offices. Out of its total
1450 branches, 500 of them have been automated either fully or partially. It has 15285
employees working and profit per employee of the bank is rupees 2.11 lakh.
VIJAYA BANK
Vijaya bank was established on 23th October, 1931. It has 1226 branches and 11565
employees working and profit per employee of the bank is rupees 4.50 lakh
YES BANK
Yes Bank is one of the top most private Indian banks. Yes Bank is recently rated to be the
second best private banks in India on its overall performance. The bank is spread in India
with a total of151 branches in India most of which are located in north India. It has 3034
employees working and profit per employee is rupees 15.75 lakhs.
CHAPTER: 3
DIVIDEND AND TAXATION – A

LITERATURE REVIEW
The literature review has attempted to identify crucial factors in dividend policy formulation
by firms. It has also excavated some significant and recurring effects of tax on the dividend
policy of firms as found by vast number of researchers in the subject. Dividend payments
have been examined and interpreted by various institutions based on the impact it exudes on
the firms. It is a diametric factor as it portends different signals to different interest groups.
For managers, it is a way of maintaining or increasing the share price and thus attracting
investors. The shareholders read different meanings to it as it signals a lot depending on the
clientele. It could show an indication of future strength and builds confidence in investors. It
could also be a nightmare because of the attendant tax liability. Different factors have been
examined as warranting various dividend dispositions by firms.
It ranges from capital availability, the industry norm, expected earning of the firm, capital
project execution, profit and liquidity of the firm and various other factors as amplified in the
literature.
Managers avoid reduction in dividend because of the sticky signal it sends to the investors
and shareholders. It may be a hallmark of incompetent management or a tip of an iceberg of
future failure. It is difficult to divorce dividend policy formulation of firms from the tax
effect it attracts. Many literatures existing in the sphere of the impact of tax on dividend
policy are superfluous as their diverse opinions are. The M&M theory, which posit on the
irrelevance in a tax-less society is remarkable fictitious on its assumption of taxes. Tax is a
recurrent factor in most economies. Taxes undeniable affect investors and the firm especially
in the dividend policies. This research is thus another step in revealing the effect particularly
in the banking sector of Maharashtra.
The literature focuses on the main areas such as the meaning and types of dividend policy
factors determining dividend policy, some theoretical models postulated to explain dividend
behavior, the correlation between taxes and dividend.
According to Doughty (2000), a dividend is simply the money that the company pays out to
its shareholder from the profit it has made. Such payments can be made in cash or by issuing
additional shares as in script dividend.
Davies and Pain (2002) however defined it as the amount payable to shareholders from profit
or distributable reserves. Companies that are listed in the stock exchange are usually
obligated to pay out dividends on a quarterly or semiannual basis. The semiannual or
quarterly payment is referred to as the interim dividend. The final payment, which is usually
paid at the end of financial year o the company, is known as final dividend. Dividends are
normally paid after the corporate tax has been deducted.
A Dividend policy is primarily concerned with the decision regarding dividend payout and
retention. According to Watson and Head (2004) it is a decision that considers the amount of
profits to be retained by the company and that to be distributed to the shareholders of the
company. Investors are seen to belong to a particular group or clientele.
This is because they tend to pitch their tent with a particular policy that might suit them.
According to Hutchinson (1995), Kolb and Rodriguez (1996) this is the clientele effect of
dividend policy. Theoretically there are different types of dividend policies. These include
constant payout, progressive policy, residual policy, and, zero policy and non cash policy.
In a constant or fixed policy, the company pays out a fixed amount of its profit after tax as a
dividend. Thus the company maintains a fixed payout ratio of dividend. However as noted by
Watson and Head (2004), the policy could be traumatic to companies experiencing a volatile
or fluctuating profit earning. This is because of uncertainty of its profit. If capital projects are
to be viable capital projects, the policy can be chaotic.
As observed by Kolb and Rodriguez (1996), the firms operating this policy will opt to pay
dividend during the inflation period rather than consistently cut down on the dividend.
Residual policy give preference to its positive NPV (Net Present Value) projects and paying
out dividends if there are still lefts over fund available. Residual policy gives rise to zero
dividend structure.
According to Kolb and Rodriguez (1996), the firms may need to modify this policy to ensure
that investors of different clienteles are not chased out by a strict application of the policy. In
alternative policy to paying cash, the company might choose to buy back shares. This is share
or stock repurchase. The alternative policies to the paying cash have a significant advantage
in terms of tax to the shareholder. According to Ross, Westerfield, and Jordan (2001), the
stock repurchase or buybackis not taxed until the shares are sold and shareholder makes the
profit or capital gain. Brealy,Myersand Marcus(1999) stated that shareholders are given
additional shares in lieu of cash to the shareholders.The choice of a particular dividend policy
by a firm is not usually accidental. It is tailored to either meet the firm’s need or the
shareholders. Shareholders have different choice of dividend depending upon their needs.
Firms also adopts policies that suit there peculiarity.
Hutchinson 91995) mentioned that a cut in dividends will give negative signal to investors on
the future prospect of the company, and this might affect the share price of the company. It is
also suggested that, by targeting a particular clientele group, management may wish to tailor
its dividend policy to suit the needs of its target investors.
Corporate dividend policy has captured the interests of financial economists and has been an
issue of intensive theoretical models and empirical examinations over the last few decades
(Frankfurter & Wood, 1997). The controversy probably began with the Modigliani & Miller
(M&M)(1961) theory, which classified investors into dividend clientele.
M&M based their argument upon idealistic assumptions of a perfect capital market and
rational investors. The assumptions of a perfect capital market necessary for the dividend
irrelevancy hypothesis can be summarized as follows:
(1) No differences between taxes on dividends and capital gains

(2) No transaction and flotation costs incurred when securities are traded
(3) All market participants have free and equal access to the same information (symmetrical
and costless information)
4) No conflicts of interests between managers and security holders (i.e. no agency problem);
(5) All participants in the market are price takers.
It was later found in a later research that tax is responsible for marginal alterations in the
portfolio composition rather than the major differences predicted by Miller & Scholes
(1978). At the onset, when the M&M theory was postulated, most financial practioners and
many academics greeted the conclusion that tax had a marginal effect on dividend policy
with surprise (Baker, Powell & Veit, 2001).
Other models such as tax adjusted model, Masulis & Trueman (1988) Model of cash
payments, Farrar & Sewlyn (1967) Model of after tax income of investors, Auerbach (1979)
Model of shareholders wealth and Akerlof (1970) Signal Model, information asymmetric
theories, Jensen (1986) free cash flow hypothesis, Feldstein and Green (1983) theoretical
dividend behavioral models and Shefrin & Statman (1984) theory of self control are all
measure to unmask firms dividend policy. In a similar study of banks dividend payout, Casey
and Dickens (2000) implored Rozeff (1982) model to examine dividend payout factors in
which he found five variables to be very significant in dividend payout policies of firms. The
variables include beta, percentage of insider ownership, past revenue growth rate, forecasted
revenue growth and the number of common stockholders. Those variables are equally very
useful in articulating dividend policies of banks. Chang and Rhee (1990) added that financial
leverage is a crucial factor in dividend policy of firms. A firm that has a high financial
leverage tends to have a high dividend payout ratio. This however depends on the tax
chargeable on the dividend income being higher than the capital gains. The term ‘dividend
policy’ refers to “the practice that management follows in making dividend payout decisions
or, in other words, the size and pattern of cash distributions over time to shareholders” (Lease
et al., 2000)
CHAPTER: 4
RESEARCH METHODOLOGY
Research is an art of scientific investigation. Research is an academic term to be used in a

technical sense, according to the need. Research comprises defining and re-defining problem,
formulation hypothesis or suggested solutions, collecting, organizing and evaluating data.
Methodology is a way to systematically solve a research problem. It may be understood as a
science of studying how research is done scientifically?
4.1RESEARCH PROBLEM:
I) Different factors affecting dividend policies of banks in Maharashtra.

II) What is the relationship between taxes and dividends?
III) How does profit affect dividend policy?
4.2 Objectives of the study:
I) To investigate the factors that affect dividend policies of banks.

II) To examine the effect of taxes of taxes on dividend policy of banks in Maharashtra.
III) To find out the influence of profit on dividend policy of banks in Maharashtra.
4.3 Statement of Hypothesis

The hypothesis to be tested in this study is tripod as it relates to profit, tax and dividend. The
research has as one of its objectives, the examination of the effect of taxes on the dividend of
banks in Maharashtra. The results of the previous researches seem to suggest a strong
correlation among tax, profit and dividend and therefore streamline the focus of the study.
However, despite the conflicting and mixed evidence in the literature concerning the extent
of the relationship between profit and tax, the resulting impact is expected to be very
significant. Therefore, a test of the null hypothesis will permit an examination of the
significant level of the expectations.
Ho: There is no significant effect of profit on dividend and tax of banks in Maharashtra.
In line with previous researches and body of literature reviewed, the present study has an
expectation that tax impact strongly on the dividend policy of banks in Maharashtra. In
particular, the evidence tends to purport the expectation that dividend and tax are strongly
correlated.
4.4 Sampling:
The investigator has taken 30 NSE listed banks as a sample.
4.4A).Design Sample:
Sample selection is the crucial stage from which the information about the problem has to be
gathered. While developing and utilizing a sample for the research purpose have six steps
were taken as,
Defining the population of the universe
Developing a sample frame
Selecting the sample method
Determining the sample size
Selecting the specific sample member
Fig.5.1 Design Sample

4.4 B) Nature of Universe
The universe or population is the specific group of people, from conditions, activeness etc
which form the pivotal point of research projects. For developing and using sample, it
becomes the primary duty of the researcher to define the population from which he intends to
draw the sample.
4.4 C) sampling frame
A sampling frame may be defined as the listing of general components of the individual unit
that comprise population.
4.4 D) Sampling methods

The next step on this research is to select the sample from which the information is to collect.
There are two ways for collection of information. First way is to collect the information from
each member of population of interest by completing canvassing the population is called a

census.
Another way would be collect the information from a portion of population is by taking a
sample of relevant from the large group. In this systematic sampling method is used. The
researcher selects the following points:
1. What would be sample size?
2. What sampling procedure should be applied?
3. What sampling method should be utilized?
4.4 D) Sample size:

In this research the sample size selected was 30 banks. Sample size was decided as per the
number of branches of banks in Maharashtra of NSE (National Stock Exchange) listed banks.
The following aspects are taken into consideration at the time of distribution of sample
1. Number of NSE (national Stock Exchange) listed banks
2. Number of Branches of Bank in Maharashtra.
4.4 E) SAMPLING PLAN

In order to accomplishing the aim of the study, a moderate sample of 30 banks in
Maharashtra was taken. The selection of sample of respondents is made based on purposive
systematic sampling. These all data is shown below. All the data which are required for
completing the research work successfully and meaningfully.
4.5 LIMITATION OF THE PRESNT STUDY

1. As the study is limited to 30 banks, the results obtained in this study will not be applicable
to out of that.
2. As the study is from Maharashtra area the result may vary slightly as compared to other
area.
3. The inherent problems of changes that may occur during the study in which the study
population is affected by those changes.
4.6 Period and Selection of Study:

The present study covers a period of nine month from August-2010 to April-2011.
Investigator has sufficient data for the research on finding out the relationship between
taxation and dividend policy. From which Investigator can give the perfect recommendation
for the bank to achieve effective and efficient dividend policy and that is why this project has
been taken.
4.7 Techniques of Analysis:

The researcher uses the Pearson correlation coefficient method as a technique for analysis
and interpretation of data to know what should be the relationship between taxes and
dividend and suggestion will be given for the achievement of efficient and effective dividend
policy. And how can bank’s profit affect the dividend and taxation policy of the bank is
explored by this technique. And also Researcher has classified the data financial year wise
due to which researcher can know about the dividend and taxation details per year.
Researcher is taking thirty NSE listed banks from which they have collected data.
CHAPTER: 5
FINANCIAL STATEMENTS OF
RESPONDEN BANKS
Investigator has collected data of banks dividend distributed and dividend paid and from the
profit and loss account of banks. And also investigator has collected data related the project
all the information of profit which is the bank has in the financial year during March 2008-
March 2010. The sample size was 30 NSE (National Stock Exchange) listed banks. This
project is based on Secondary Data.
Secondary Data
All the secondary data have been collected from -
1) The Profit and Loss account of the banks.

2) From the Web site of banks.
3) From the document available in the Reserve Bank of India website.
The data collected from this source have been used and complied with due care as per
requirement of the study. Secondary data obtained from the financial reports of the banks
over a period of 3 years was used. The study population consists of 30 banks in Maharashtra
that are quoted in the National Stock Exchange (NSE). The study sample was selected using
the systematic sampling technique. The choice of the systematic sampling technique is in
order to get convenient samples that will be an adequate representation of the study. A major
weakness of this technique is the inherent problems of changes that may occur during the
study in which the study population is affected by those changes. The banks selected are
based on the number of branches across the thirty-six states in the country. The banks have at
least a branch in each state of the country and are grouped in the new generation banks
whose financial statements are publicly available. They also have employees numbering over
eight hundred and fifty each.
Profit and Loss Account of Andhra bank From year March 2008-2010 (Rs. in carore)
Mar ‘ 10 Mar ‘ 09 Mar ‘ 08
Income
Operating income 7,024.44 5,664.34 4,567.63
Expenses
Material consumed - - -
Manufacturing
- - -
expenses
Personnel expenses 824.08 624.06 509.39
Selling expenses 6.74 10.50 9.89
Adminstrative
721.93 558.07 462.32
expenses
Expenses capitalised - - -
Cost of sales 1,552.75 1,192.63 981.61
Operating profit 1,293.56 724.00 716.03
Other recurring
353.84 293.36 291.17
income
Adjusted PBDIT 1,647.40 1,017.36 1,007.20
Financial expenses 4,178.13 3,747.71 2,870.00
Depreciation 102.00 81.76 61.33
Other write offs - - -
Adjusted PBT 1,545.40 935.60 945.87
Tax charges 384.00 226.52 339.53
Adjusted PAT 1,045.30 652.72 575.33
Non recurring items 0.55 0.33 0.24
Other non cash
- - -
adjustments
Reported net profit 1,045.85 653.05 575.57
Earnigs before
1,198.79 729.89 651.80
appropriation
Equity dividend 242.50 218.25 194.00
Preference dividend - - -
Dividend tax 40.28 37.09 32.97
Retained earnings 916.02 474.54 424.83
Profit and Loss Account of Allahabad bank From year March 2008-2010(Rs. in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing
- - -
expenses
Personnel expenses 1,011.38 873.94 689.88
Administrative
1,352.33 768.18 667.69
expenses
Expenses capitalized - - -
Cost of sales 2,385.35 1,656.35 1,372.98
Operating profit 1,655.05 1,246.98 1,209.85
Other recurring
228.99 39.73 33.88
income
Adjusted PBDIT 1,884.04 1,286.71 1,243.73
Depreciation 62.70 56.32 53.15
Adjusted PBT 1,821.34 1,230.39 1,190.58
Tax charges 554.24 303.78 129.24
Adjusted PAT 1,206.89 768.56 974.76
Non recurring items -0.56 0.04 -0.02
Other non cash
- - -
adjustments
Earnigs before
1,302.42 868.47 1,077.24
appropriation
Equity dividend 245.69 111.68 134.01
Dividend tax 41.75 18.98 22.78
Retained earnings 1,014.98 737.82 920.46
Profit And Loss Account Axis Bank From Year March 2008-2010 (Rs in carore)
Mar ' 09 Mar ' 08
Mar ' 10
Income
Expenses
Manufacturing - - -
expenses
Administrative 3,529.35 2,357.78 1,551.27
expenses
Expenses - - -
capitalized
Cost of sales 4,832.44 3,401.76 2,295.92
Other recurring 202.17 81.81 13.86
income
Adjusted PBDIT 4,143.94 3,081.73 2,048.66
Depreciation 234.32 188.67 158.11
Adjusted PBT 3,909.62 2,893.07 1,890.54
Tax charges 1,492.37 970.12 734.86
Adjusted PAT 2,518.40 1,823.56 1,086.21
Nonrecurring items -3.87 -8.20 -15.18
Other non cash - - -
adjustments
Reported net profit 2,514.53 1,815.36 1,071.03
Earnings before 4,862.62 3,369.23 2,100.10
appropriation
Equity dividend 567.45 420.52 251.64
Preference - - -
dividend
Dividend tax - - -
Retained earnings 4,295.17 2,948.71 1,848.47
Mar ' 10 Mar ' 09 Mar ' 08

Income
Expenses
Manufacturing - - -
expenses
Personnel expenses 2,350.88 2,348.13 1,803.76
Administrative 2,085.03 1,226.06 1,301.33
expenses
Expenses - - -
capitalized
Cost of sales 4,480.37 3,614.16 3,138.28
Other recurring 770.63 707.44 688.58
income
Adjusted PBDIT 4,646.16 3,730.20 2,782.44
Depreciation 230.86 230.50 232.00
Adjusted PBT 4,415.30 3,499.70 2,550.44
Tax charges 1,179.73 1,115.74 771.63
Adjusted PAT 3,058.28 2,227.25 1,435.16
Nonrecurring items 0.05 -0.04 0.37
adjustments
Earnings before 3,058.33 2,227.20 1,435.52
appropriation
Equity dividend 639.26 383.56 340.94
Preference - - -
dividend Profit
Dividend tax - - -
And
Loss
Account Bank of Baroda From Year March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08

Income
Expenses
Manufacturing - - -
expenses
Adminstrative 578.95 477.10 350.66
expenses
Cost of sales 1,248.48 1,074.42 853.87
Operating profit 608.74 593.71 561.41
income
Adjusted PBDIT 692.92 648.64 630.04
Adjusted PBT 617.83 572.88 561.26
Tax charges 129.33 147.56 194.22
Adjusted PAT 439.48 361.71 325.70
Nonrecurring items 0.17 0.68 -0.11
Other non cash -0.08 12.77
adjustments
Reported net profit 439.58 375.17 328.39
Earnings before 567.41 633.78 463.05
appropriation
Equity dividend 86.10 64.58 86.10
Dividend tax 14.63 10.97 14.63
Profit And Loss Account Bank of Maharashtra From Year March 2008-2010
(Rs in carore)
Profit And Loss Account Canara Bank From Year March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Administrative 2,535.10 1,890.63 1,789.39
expenses
Cost of sales 4,748.66 3,791.61 3,496.32
Other recurring 1,082.20 901.24 750.34
income
Adjusted PBDIT 4,115.66 2,829.24 2,115.26
Depreciation 155.13 173.64 169.97
Adjusted PBT 3,960.52 2,655.59 1,945.29
Tax charges 800.00 500.00 340.00
Adjusted PAT 3,018.65 2,071.59 1,563.92
adjustments
Earnigs before 3,021.43 2,072.42 1,565.01
appropriation
Equity dividend 410.00 328.00 328.00
Dividend tax 70.00 55.75 56.00
Profit And Loss Account Central Bank of India from March 2008-2010(Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Administrative 870.26 812.53 740.08
expenses
Cost of sales 2,431.67 2,100.45 1,961.28
Other recurring 342.85 149.84 294.88
income
Adjusted PBDIT 1,784.40 1,107.83 979.15
Adjusted PBT 1,705.65 1,024.24 905.54
Tax charges 207.45 353.88 301.78
Adjusted PAT 1,058.55 571.60 550.62
Non recurring items -0.32 -0.35 -0.46
adjustments
Earnigs before 1,059.36 571.83 552.95
appropriation
Preference dividend 53.09 68.04 70.00
Dividend tax 24.13 25.30 25.63
Profit And Loss Account Federal Bank Limited From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 1,039.82 875.12 631.71
Other recurring 268.24 275.12 189.40
income
Adjusted PBDIT 999.27 932.02 599.79
Adjusted PBT -1,313.32 -1,110.74 -1,076.86
Tax charges 361.50 328.66 145.15
Adjusted PAT 464.15 499.92 368.07
Nonrecurring items 0.39 0.57 -0.02
adjustments
Earrings before 486.48 515.11 382.51
appropriation
Dividend tax 14.21 14.54 11.63
Profit And Loss Account HDFC Bank From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Adminstrative 4,936.73 4,583.86 2,247.48
expenses
Cost of sales 7,309.02 6,930.74 3,663.56
Other recurring 17.72 - 43.04
income
Adjusted PBDIT 4,881.17 - 3,846.77
Depreciation 394.39 359.91 271.72
Adjusted PBT 4,486.77 3,568.97 3,575.05
Tax charges 1,340.99 1,054.92 690.90
Adjusted PAT 2,944.68 2,240.75 1,589.48
Other non cash -0.93 -0.59 -0.06
adjustments
Earnigs before 6,403.33 4,818.98 3,522.15
appropriation
Equity dividend 549.29 425.38 301.27
Dividend tax 91.23 72.29 51.20
Profit And Loss Account ICICI Bank From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Selling expenses 236.28 669.21 1,750.60
Administrative 7,440.42 7,475.63 6,447.32
expenses
Cost of sales 9,602.49 10,116.54 10,276.82
income
Adjusted PBDIT 5,857.66 5,738.55 5,772.43
Depreciation 619.50 678.60 578.35
Adjusted PBT -12,354.42 -17,665.98 5,194.08
Tax charges 1,600.78 1,830.51 1,611.73
Adjusted PAT 3,890.47 3,740.62 4,092.12
Other non cash - -0.58 -
adjustments
Earnigs before 6,834.63 6,193.87 5,156.00
appropriation
Equity dividend 1,337.95 1,224.58 1,227.70
Dividend tax 164.04 151.21 149.67
Profit And Loss Account IDBI Bank from March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Administrative 1,173.96 811.35 599.00
expenses
Cost of sales 1,976.78 1,428.97 1,008.86
Other recurring 253.47 113.73 138.48
income
Adjusted PBDIT 2,335.07 1,047.39 924.94
Adjusted PBT 2,244.09 994.69 841.44
Tax charges 346.31 127.10 93.25
Adjusted PAT 1,032.57 845.26 728.64
Nonrecurring items -1.43 13.28 0.81
adjustments
Earnings before 1,102.33 879.58 2,044.36
appropriation
Equity dividend 217.46 181.20 144.95
Dividend tax 31.47 30.79 22.27
Retained earnings 853.40 667.59 1,877.14
Profit And Loss Account Indian Bank From March2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 2,034.46 1,344.23 1,647.42
Operating profit 1,932.14 1,605.88 754.94
Other recurring 607.31 491.13 543.26
income
Adjusted PBDIT 2,539.45 2,097.01 1,298.20
Depreciation 87.89 84.56 102.45
Adjusted PBT 2,451.56 2,012.45 1,195.75
Tax charges 796.62 540.76 226.24
Adjusted PAT 1,555.35 1,245.25 1,009.26
Nonrecurring items -0.37 0.07 -0.52
adjustments
Earnings before 1,641.07 1,329.58 1,089.43
appropriation
Equity dividend 279.35 214.89 128.93
Preference dividend 40.00 37.50 35.00
Dividend tax 53.91 42.89 27.86
Retained earnings 1,267.82 1,034.31 897.64
Profit And Loss Account Indian Overseas Bank From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Personnel expenses 1,734.75 1,271.84 949.68
Administrative 1,503.62 907.46 573.78
expenses
Cost of sales 3,274.20 2,206.25 1,535.64
Operating profit 956.96 1,932.80 1,534.32
Other recurring 198.38 256.79 265.40
income
Adjusted PBDIT 1,155.33 2,189.59 1,799.72
Depreciation 111.76 100.94 75.10
Adjusted PBT 1,043.57 2,088.65 1,724.62
Tax charges 271.99 628.51 452.36
Adjusted PAT 705.35 1,257.29 1,200.76
Nonrecurring items 1.61 68.50 1.57
adjustments
Reported net profit 706.96 1,325.79 1,202.34
Earnings before 706.96 1,325.79 1,202.34
appropriation
Equity dividend 223.09 286.82 203.96
Dividend tax - - -
Retained earnings 483.88 1,038.97 998.37
Profit And Loss Account IndusInd Bank From March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 821.99 628.16 422.93
Other recurring 195.53 151.47 164.71
income
Adjusted PBDIT 652.19 320.84 172.49
Adjusted PBT 606.90 276.68 132.33
Tax charges 182.74 79.15 39.23
Adjusted PAT 384.31 178.97 75.72
adjustments
Earnigs before 597.31 391.33 75.05
appropriation
Dividend tax 12.27 7.60 3.26
Profit And Loss Account Ing Vyasa BankFrom March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 996.77 837.99 606.56
income
Adjusted PBDIT 454.96 359.35 316.66
Adjusted PBT 413.99 318.53 277.72
Tax charges 129.29 105.87 94.53
Adjusted PAT 242.12 184.18 151.57
adjustments
Earnings before 448.75 292.31 173.39
appropriation
Dividend tax 5.10 3.49 2.61
Profit And Loss Account Karnataka Bank From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 452.38 373.67 343.33
income
Adjusted PBDIT 212.53 419.69 358.74
Adjusted PBT -1,517.49 399.85 341.27
Tax charges 23.29 157.56 109.57
Adjusted PAT 166.91 266.69 241.70
adjustments
Earnings before 167.15 266.80 241.76
appropriation
Dividend tax 9.11 12.40 10.31
Profit And Loss Account Karur Vysya Bank From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 343.52 242.35 199.37
income
Adjusted PBDIT 460.27 364.86 327.55
Financial expenses 1,193.05 1,035.68 765.35
Adjusted PBT 437.63 344.33 307.95
Tax charges 89.84 95.10 99.90
Adjusted PAT 335.59 235.58 208.30
adjustments
Earnings before 337.48 236.95 209.69
appropriation
Dividend tax 11.10 11.00 11.00
Profit And Loss Account Kotak Mahindra Bank From March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 1,357.41 1,264.05 948.39
income
Adjusted PBDIT 927.05 494.03 576.42
Adjusted PBT 837.05 424.47 525.57
Tax charges 250.00 149.96 103.85
Adjusted PAT 564.05 275.82 292.81
Other non cash 2.01 - -
adjustments
Earnings before 1,212.06 804.27 648.12
appropriation
Dividend tax - 1.86 4.40
Profit And Loss Account Lakshmivikas Bank From March 2008-2010(Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Operating income 986.23 731.94 561.51
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 169.18 140.81 126.15
income
Adjusted PBDIT 183.43 109.39 68.98
Financial expenses 660.19 504.07 381.93
Adjusted PBT 166.13 96.67 60.40
Tax charges - 31.20 27.85
Adjusted PAT - 47.67 19.79
adjustments
Earnings before 30.96 50.59 25.71
appropriation
Dividend tax 0.97 2.07 1.24
Profit And Loss Account Oriental Bank From March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Administrative 1,148.36 703.10 255.10
expenses
Cost of sales 2,131.38 1,473.12 815.08
income
Adjusted PBDIT 1,976.28 1,361.28 1,416.43
Adjusted PBT 1,890.09 1,280.98 1,341.38
Tax charges 470.84 254.63 420.96
Adjusted PAT 1,134.34 905.57 838.28
Nonrecurring items 0.34 -0.15 -485.07
adjustments
Earnings before 1,135.51 905.93 353.63
appropriation
Equity dividend 227.99 182.89 117.75
Dividend tax 38.75 31.08 20.01
Profit And Loss Account Punjab And Sind Bank From 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Selling expenses - - -
expenses
Cost of sales 919.17 750.19 657.04
Other recurring 392.13 383.54 309.14
income
Adjusted PBDIT 656.90 645.21 437.89
Depreciation - - -
Adjusted PBT -2,093.33 -1,590.10 -995.61
Tax charges 156.46 210.80 48.32
Adjusted PAT 500.44 434.41 389.57
Nonrecurring items 0.69 - -
adjustments
Earnings before 1,081.04 817.14 490.22
appropriation
Equity dividend - - -
Preference dividend 10.00 2.74 -
Dividend tax 1.70 0.46 -
Profit And Loss Account Punjab National Bank From March 2008-2010(Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Administrative 2,377.28 1,880.13 1,247.47
expenses
Cost of sales 5,538.52 4,835.76 3,732.33
Other recurring 436.59 553.00 231.62
income
Adjusted PBDIT 6,478.82 5,329.35 3,694.08
Depreciation 222.83 191.06 170.23
Adjusted PBT 6,256.00 5,138.29 3,523.85
Tax charges 1,999.43 1,676.04 1,247.15
Adjusted PAT 3,902.94 3,089.11 2,047.63
adjustments
Earnings before 3,913.00 3,090.88 2,064.28
appropriation
Equity dividend 693.67 630.61 409.89
Dividend tax 116.43 107.17 69.66
Profit And Loss Account State Bank of India from March 2008-2010 (Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Administrative 11,029.66 7,361.98 5,970.47
expenses
Cost of sales 24,008.35 17,360.52 13,929.57
Other recurring 1,051.15 894.26 901.33
income
Adjusted PBDIT 15,629.69 15,499.20 11,864.23
Depreciation 932.66 763.14 679.98
Adjusted PBT -32,625.45 14,736.06 11,184.25
Tax charges 6,166.62 6,115.12 3,929.20
Adjusted PAT 9,176.51 9,124.18 6,718.08
Nonrecurring items -10.46 -2.95 11.04
adjustments
Earnings before 9,166.39 9,121.57 6,729.46
appropriation
Equity dividend 1,904.65 1,841.15 1,357.66
Dividend tax 236.76 248.03 165.87
Profit And Loss Account State Bank Of Bikaner And Jaiipur From March2008-2010
(Rs in carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 982.96 819.91 807.13
income
Adjusted PBDIT 843.93 772.23 578.79
Adjusted PBT 794.51 731.27 519.00
Tax charges 245.22 293.63 80.72
Adjusted PAT 455.16 403.45 315.00
Nonrecurring items - - -
adjustments
Earnings before 455.16 403.45 315.00
appropriation
Dividend tax 12.24 10.20 8.50
Mar ' 10 Mar ' 09 Mar ' 08

Income 7,200.66 6,233.79 4,956.78
Operating income
Expenses - - -
Manufacturing 602.56 552.15 469.17
expenses
Administrative - - -
expenses
Expenses capitalized 1,071.99 1,026.95 710.08
Cost of sales 1,657.79 964.12 956.45
Other recurring 1,695.40 1,024.55 1,035.82
income
Adjusted PBDIT 4,470.88 4,242.71 3,290.25
Financial expenses 49.31 40.96 58.27
Depreciation - - -
Other write offs 1,646.09 983.59 977.55
Adjusted PBT 387.50 217.06 252.10
Tax charges 823.71 616.54 557.59
Adjusted PAT -1.00 -0.74 -0.61
Nonrecurring items - - -
Other non cash 822.71 615.81 556.99
adjustments
Earnings before 116.53 96.87 96.87
appropriation
Equity dividend - - -
Dividend tax 706.18 518.94 460.12
Retained earnings 1,267.82 1,034.31 897.64
Profit And Loss Account State Bank of Hyderabad From March 2008-2010.
Profit And Loss Account Syndicate Bank From March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
Personnel expenses 1,337.76 1,045.16 928.91
Administrative 1,126.27 1,009.31 796.74
expenses
Cost of sales 2,481.41 2,076.99 1,738.48
Other recurring 420.32 354.02 279.64
income
Adjusted PBDIT 1,470.52 1,279.35 1,214.74
Depreciation 88.17 113.02 103.05
Adjusted PBT 1,382.34 1,166.33 1,111.69
Tax charges 360.71 123.52 157.47
Adjusted PAT 813.34 912.66 848.14
Nonrecurring items -0.02 0.17 -0.07
adjustments
Earnings before 813.32 912.82 848.07
appropriation
Equity dividend 156.59 156.58 146.15
Dividend tax 26.01 26.62 24.84
Profit And Loss Account United Bank of India From March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 1,248.28 1,109.98 1,098.93
Other recurring 198.47 122.50 133.35
income
Adjusted PBDIT 776.93 415.04 198.10
Adjusted PBT 678.38 351.06 148.87
Tax charges 88.16 61.76 22.16
Adjusted PAT 322.13 184.67 318.92
adjustments
Earnings before 322.36 184.71 318.95
appropriation
Equity dividend 63.29 - 45.97
Preference dividend 15.00 - -
Dividend tax 13.30 - 7.81
Profit And Loss Account Vijaya Bank From March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing - - -
expenses
expenses
Cost of sales 1,496.99 1,021.96 771.04
Other recurring 268.91 224.63 190.12
income
Adjusted PBDIT 812.83 677.10 342.75
Adjusted PBT 763.91 640.12 311.95
Tax charges 252.12 222.23 35.40
Adjusted PAT 483.56 207.64 349.91
Other non cash 24.00 54.61 5.37
adjustments
Earnings before 1,257.77 1,013.17 967.41
appropriation
Preference dividend 35.10 0.10 -
Dividend tax - - -
Profit And Loss Account Yes Bank From March 2008-2010 (Rs In carore)
Mar ' 10 Mar ' 09 Mar ' 08
Income
Expenses
Manufacturing
- - -
expenses
Administrative
289.82 226.01 133.61
expenses
Cost of sales 557.50 445.51 337.69
Other recurring
54.27 34.54 74.53
income
Adjusted PBDIT 791.17 520.79 353.57
Financial expenses 1,581.76 1,492.14 974.11
Adjusted PBT 760.91 490.69 334.34
Tax charges 248.75 162.07 106.46
Adjusted PAT 478.33 304.00 200.03
Other non cash
- - -
adjustments
Earnigs before
883.51 548.92 305.32
appropriation
Equity dividend 50.95 - -
Dividend tax 8.66 - -
CHAPTER: 6
DATA ANALYSIS AND INTERPRETATION

All the analysis and interpretation has been done by the collected data by the investigator.
Whatever data has been shown in the previous chapter Analysis has been done on the basis of
that data. And with the help of analysis and interpretation conclusion has been drown by the
investigator.
The descriptive statistics table shows the mean and standard deviation of tax and dividend.
STANDARD DEVIATION N
Mar’10 Mar’09 Mar’08
TAX 413.85 397.12 320.95 30
DIVIDEND 1163.737 1134.737 724.6343 30
Table 6.1 Descriptive statistics.
The standard deviation of tax and dividend is 413.8, 397.12, 320.95 and 1163.737, 1134.737,
724.6343 respectively for the year March 2010, March 2009 and March 2008 respectively.
This demonstrates that both the tax and dividends of the banks are well centralized.
In order to establish any relationship between tax and dividend, the Pearson correlation
coefficient was used in correlating the variables. Table 6.2 is the correlation table and shows
that tax and dividend have a significant positive correlation.
Tax Dividend
Mar’1 Mar’09 Mar’0 Mar’10 Mar’0 Mar’08
0 8 9
Tax 0.923 0.9428 0.917
Dividend 0.923 0.9428 0.917
N 30 30
Table 6.2 Pearson Correlation .Sig. (2-tailed)
Model Standard Error Beta T figure

Mar’1 Mar’0 Mar’0 Mar’1 Mar’0 Mar’0 Mar’1 Mar’0 Mar’0
0 9 8 0 9 8 0 9 8
Tax 492.969 361.699 378.926 0.604 0.634 0.225 3.70923 3.98467 2.99402
6 3 6 7 2
Dividen 525.895 428.556 328.731 0.2160 0.215 0.225 1.93718 1.78629 2.02545
d 4 4 3 8 7 5
In order to verify the assumptions on the relationship among profit, tax and dividend, the
Table 6.2 Pearson Correlation .Sig. (2-tailed)
Table 6.3 Standard Multiple Regression.
The multiple regression tables shows the linearity of the variables. However, the t-figure of
3.7091, 3.9846, 2.994 for tax of year March 2010, March2009, and March 2008 respectively
indicates an insignificant correlation of profit and tax.
But the t-figure of dividend 1.9371, 1.7862, 2.0225 for the year March 2010, March2009,
and March 2008 respectively shows a significant correlation of profit and dividend. This is
also shown in the beta values. The standard coefficients (beta) indicate that the values of the
variables have been converted to scale for ease of comparison. The beta value gives the
contribution or relevance of each of the independent variables. The highest beta figure is
0.634, which indicates that dividend has a strong correlation with profit rather than the tax,
which has a less beta value of 0.215.
Sum of squares Df Mean Square F

Mar Mar Mar Mar Mar Mar’ Mar Mar’ Mar Mar’ Mar’ Mar’
’10 ’09 ’08 ’10 ’09 08 ’10 09 ’08 10 09 08
Regression 0.92 0.94 0.91 1 1 1 0.85 0.888 0.83 164.5 223.4 150.5
4 2 8 4 3
Sig .000(a)
Table 6.4 Standard Multiple Regression.
a. Predictors: (Constant), Tax, Dividend

b. Dependent Variable: Profit
As shown in the ANOVA table, indicating that profit does not significantly affect tax of the
banks. Therefore the null hypothesis is true, as the standard regression analysis shows no
significant effect of profit on tax but establishes a significant correlation between profit and
dividend of the banks.
The findings of the study the impact of taxes on dividend was analyzed using the Pearson
correlation. The hypothesis formulated in the study is tasted using the regression analysis
shows that though taxes correlate with dividends, they do not significantly affect the dividend
structures of bank. This finding highlights that effective tax rates on dividends income are
higher than the tax rate on capital gain. Thus the finding support the idea of dividend
clientele that highly taxed individuals is attracted to firms that pay low dividends and would
avoid companies that offer high dividend payout policy.
The results of data analysis obtained in the study shows that various factors affecting the
dividend policies interrelated and are therefore central to the decision of management in the
formulation of company’s dividend policy. The finding shows that increase and payments of
dividends are very important to shareholders and those companies strive to achieve a
sustainable level of dividend payout in the long term.
CHAPTER: 7
ANALYSIS AND EVALUATION
The analysis and evaluation is performed by Microsoft Excel Software. The Pearson
correlation and beta value can be computed by using inbuilt statistical function in Microsoft
Excel software. Regression analysis is also used to understand which among the independent
variables are related to the dependent variable, and to explore the forms of these
relationships. The details of regression computation are given as follows:
A. Computation of Standard error, t-stat of tax for the year March 2010.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.965977
R Square 0.933111
Adjusted R
Square 0.930633
Standard
Error 492.9696
Observations 29
ANOVA
Significanc
Df SS MS F eF
Regression 1 91533741 91533741 376.6525 2.18E-17
Residual 27 6561515 243019.1
Total 28 98095256
Coefficient Standard Upper Lower Upper

s Error t Stat P-value Lower 95% 95% 95.0% 95.0%
Intercept 400.6881 108.0244 3.709237 0.00095 179.0403 622.3359 179.0403 622.3359
384 1.54517 0.079617 19.40754 2.18E-17 1.38181 1.708531 1.38181 1.708531
B. Computation of Standard error, t-stat of tax for the year March 2009
SUMMARY OUTPUT
Multiple R 0.979888
R Square 0.960181
Adjusted R
Square 0.958706
Standard
Error 361.6993
Observation
s 29
ANOVA
Significanc
Df SS MS F eF
8517650 8517650 651.065
Regression 1 2 2 2 1.96E-20
Residual 27 3532312 130826.4
8870881
Total 28 4

0.00046 465.293 148.983
Intercept 307.1384 77.08001 3.98467 1 148.9833 5 3 465.2935
1.63533 1.39190
226.52 1.513622 0.059321 25.51598 1.96E-20 1.391906 7 6 1.635337
C. Computation of Standard error, t-stat of tax for the year March 2008
SUMMARY OUTPUT
Multiple R 0.962929
R Square 0.927233
Adjusted R
Square 0.924537
Standard
Error 378.9266
Observations 29
ANOVA
Significanc
Df SS MS F eF
Regression 1 49399804 49399804 344.0449 6.82E-17
Residual 27 3876805 143585.4
Total 28 53276609

Intercept 244.7753 81.75468 2.994022 0.00583 77.0286 412.5221 77.0286 412.5221
339.53 1.728513 0.093189 18.54845 6.82E-17 1.537305 1.919721 1.537305 1.919721
D. Computation of Standard error, t-stat of dividend for the year March 2010.
SUMMARY OUTPUT
Multiple R 0.961185
R Square 0.923877
Adjusted R
Square 0.921058
Standard
Error 525.8954
Observations 29
ANOVA
Significanc
Df SS MS F eF
327.690
Regression 1 90627975 90627975 3 1.26E-16
Residual 27 7467281 276566
Total 28 98095256

Intercept 233.5741 120.5738 1.937188 0.06325 -13.8229 480.9711 -13.8229 480.9711
3.78852
242.5 4.272841 0.23604 18.10222 1.26E-16 3.788528 4.757155 8 4.757155
E. Computation of Standard error, t-stat of dividend for the year March 2009.
SUMMARY OUTPUT
Multiple R 0.971648
R Square 0.9441
Adjusted R
Square 0.942029
Standard
Error 428.5564
Observations 29
ANOVA
Significanc
df SS MS F eF
456.004
Regression 1 83749978 83749978 1 1.92E-18
Residual 27 4958836 183660.6
Total 28 88708814

0.08528
Intercept 169.4553 94.86403 1.786297 7 -25.1896 364.1002 -25.1896 364.1002
3.94703
218.25 4.366597 0.204484 21.35425 1.92E-18 3.947031 4.786163 1 4.786163
F. Computation of Standard error, t-stat of dividend for the year March 2008.
SUMMARY OUTPUT
Multiple R 0.972232
R Square 0.945234
Adjusted R
Square 0.943206
Standard
Error 328.7313
Observations 29
ANOVA
Significanc
Df SS MS F eF
Regression 1 50358874 50358874 466.0086 1.46E-18
Residual 27 2917735 108064.3
Total 28 53276609

-
Intercept 148.0928 73.11583 2.025455 0.05281 -1.92848 298.1141 1.92848 298.1141
194 4.186643 0.193941 21.58723 1.46E-18 3.78871 4.584577 3.78871 4.584577
CHAPTER : 8
CONCLUSIONS AND
RECOMMENDATIONS
CONCLUSIONS
1. The investigator arrives at the conclusion that Dividend structures of companies are
basically influenced by various factors. The factors though may be similar in most
organizations or industries, but they are uniquely determined by the nature of the company.
Due to the susceptibility of the profit of banks, their dividend policy is often to maintain a
low but steady payout.
2. Foremost among the determinants of the dividends structure are the liquidity position of
the company. This is a function of the profitability of the company. Organizations that have
investment projects will rely on their after tax profit. Thus, the availability of alternate
investment opportunity shapes what the dividend will eventually be.
3. Dividend clientele is a very formidable factor in the consideration of a dividend policy.

Managers are more inclined to formulate policies that suit the investors’ interest.
4. Dividend structure of organization is often flexible, as it is base on the present

circumstances of the organization. Reduction in dividend is viewed as signal of non
performance and eventual failure in the future. The constant policy is most often preferred.
5. Profitability of a business is a major variable in the dividend formation of banks. Where a

business does not have good performance indicators, its dividend policy will be twisted
and hardly stable. Profit though, does not always determine the structure of the dividend.
Banks may maintain a constant dividend to impress investors. Thus dividend is
considered as a hallmark of good performance.
6. Profit is not ultimately the crucial factor in the dividend formulation of the bank. Thus
changes in profit do not necessarily warrant increase in dividend.
7. Taxes have significant impact on dividend policy of banks. The implication is that
reduction or increase in taxes will make for a different dividend structure. Alternatives to
cash dividends are optimally sought for by managers in order to alleviate the impact of
taxes on dividend. Shareholders who are tax averse will opt for capital gain; scrip
dividends and other tax avoidance technicalities in order to reduce the tax effects on their
dividend.
8. Study shows that no significant effect of profit on tax but establishes a significant
correlation between profit and dividend of banks.
Recommendations
The following recommendations are made based on the results of the study.
1) Adoption of a dividend policy by the banks particularly in Maharashtra should be strictly

considered based on the unique circumstances of the bank and not necessarily based on age
long traditional factors often formulated by academics. This is essential in order to maintain a
steady and reasonable policy.
2) Due to the susceptibility of the bank’s profitability to economic changes in the country, it
is unrealistic to seek to formulate a dividend policy that follows a constant payout. However,
a low, reasonable and realistic policy should be adopted.
3) Hence differential taxation of dividend might affect the equilibrium assets price, rational
investors should be interested in the profit after tax of the firm.
4) Consideration should be given to the needs and expectation of the shareholders in

streamlining a dividend policy. When shareholders are akin to tax saving or minimizing tax
liability, it is reasonable to consider policies that allows for tax savings such as scrip
dividends.
5) Banks should encourage capital gains and lay structure that will prompt their shareholders
to opt out of cash dividend especially in a developing country like Maharashtra where
investors are not comfortable with investment income tax.
BIBILIOGRAPHY
Books:
1) Arun Murthy T V S & Wakde D G (2003), A Taxt Book of RESEARCH

METHODOLOGY for management decisions, First Edition, 4th May 2003,
S.S.G.M.C.E Publication, Shegaon.
2) Khan and Jain (2007): Financial Management, First Edition, April 2007,
Himalaya Publication House, Mumbai.
Encyclopedia:
Banking System in India 2010.
Annual reports of Reserve Bank of India 2008, 2009, 2010.
Websites:
www.Portal.brint.com
www.rediffmoney.com
www.Rbigov.in.
www.Encyclopedia.com
www.FinanceIndia.com

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“Dividend Policy under Taxation System – A case study of Banks in Maharashtra”

1.1 Meaning of Dividend Policy :

Forms of dividend payment:

Dividend policy is thought to convey information to shareholders about a firm’s future

 The liquidity position of the firm.

1.2 Meaning of Taxation Policy:

1.3Relationship between Taxation and Dividend policy:

1.4 Introduction to Banking system:

 conducting current accounts

The economic functions of banks include:

1.5 Introduction to taxation System In India:

CENTRAL BANK OF INDIA

FEDERAL BANK LIMITED

ICICI BANK LIMITED

IDBI BANK LIMITED

INDIAN OVERSEAS BANK

INDUSIND BANK LIMITED

ING VYSYA BANK

KRUR VYSYA BANK

KOTAK MAHINDRA BANK LIMITED

LAKSHMIVIKAS BANK LIMITED

ORIENTAL BANK OF COMMERCE

PUNJAB AND SIND BANK

PUNJAB NATIONAL BANK

STATE BANK OF INDIA

The eight banking subsidiaries are:

 State Bank of Bikaner and Jaipur (SBBJ)

UNION BANK OF INDIA

UNITED BANK OF INDIA

DIVIDEND AND TAXATION – A

(1) No differences between taxes on dividends and capital gains

Research is an art of scientific investigation. Research is an academic term to be used in a

I) Different factors affecting dividend policies of banks in Maharashtra.

4.2 Objectives of the study:

I) To investigate the factors that affect dividend policies of banks.

4.3 Statement of Hypothesis

Defining the population of the universe

Developing a sample frame

Selecting the sample method

Determining the sample size

Selecting the specific sample member

Fig.5.1 Design Sample

4.4 D) Sampling methods

each member of population of interest by completing canvassing the population is called a

4.4 D) Sample size:

4.4 E) SAMPLING PLAN

4.5 LIMITATION OF THE PRESNT STUDY

4.6 Period and Selection of Study:

4.7 Techniques of Analysis:

1) The Profit and Loss account of the banks.

Mar ' 10 Mar ' 09 Mar ' 08

Mar ' 10 Mar ' 09 Mar ' 08

Mar ' 10 Mar ' 09 Mar ' 08

DATA ANALYSIS AND INTERPRETATION

Table 6.1 Descriptive statistics.

Model Standard Error Beta T figure

Sum of squares Df Mean Square F

Table 6.4 Standard Multiple Regression.

a. Predictors: (Constant), Tax, Dividend

ANALYSIS AND EVALUATION

Coefficient Standard Upper Lower Upper

Coefficient Standard Upper Lower Upper