It is assumed that walter model is only applicable to all equity firms. this model is also assumed that r is constant. in fact r decreases as more and more investment is made. this reflects that the firm has made higher investment made first and poorer investment made later.

Gandhidham Mercantile Co-Operative Bank

Submitted to

Prof Anuj Sharma

Professor

Prepared by:

Vishal. K. Lachhwani

Desirable for Organization Attached SIP

This is to certify that project work embodied in this report entitled A Study on Dividend Policy and its Impact on the Shareholders Wealth in Gandhidham Mercantile Co-Operative Bank was carried out by Vishal K Lachhwani 208360592023 of Tolani Institute of Management Studies code - 836

The report is approved / not approved.

Institute Name: Tolani Institute of Management Studies

Institute Code:

Institute Certificate

“This is to Certify that this Summer Internship Project Report Titled A Study on Dividend Policy and its Impact on the Shareholders Wealth in Gandhidham Mercantile Co-Operative Bank is the bonafide work of Vishal K Lachhwani (208360592023), who has carried out his / her project under my supervision. I also certify further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate. I have also checked the plagiarism extent of this report which is

Anuj Sharma. Asst. Prof.

Signature of Principal/Director with Stamp of Institute

I take this opportunity to express my gratitude, thanks and regards towards all of those who have directly or indirectly helped me in the successful completion of this project.

I present my sincere thanks to Mr. Shri Sunil Goyal (Branch Manager, Gandhidham) who allowed me to take training at GMCB Bank.

Place: Gandhidham

Signature

Bank is very old institution that is contributing toward he development of any economy and is treated as an important service industry in the modern world. Economic history shows that development has started everywhere with the banking system and its contribution towards financial development of a country is the highest development of a country is the highest in the initial stage. Modern banks play a vital part in promoting economic development of a country

A bank is known as the financial institution for any country. A licensed bank has rights to accept deposits and lend loans to the persons of a country. Banks plays a prime role in economy as they provide vital services for both consumers and business. Banking sector plays as contribution to the economy is 7.7 % to GDP.

The first bank of india was Bank of Hindustan and was Developed in 1770, founded by Alexander and Co at Calcutta under the European Management. The evolution of banking system in India gone through three phases

1. The Pre – Independence Phase I ( 1786 – 1947 )

• Fraud to Indian Account holders

• Lack of Infrastructure and automation

As we all know that India got independence on 15 August 1947, now the government is formed by indian people and we have to do all our activities as by ourselves and comes together as a nation survive strongly in this competitive world.

Before independence all banks are led by privately that was a concern for people who live in rural areas and they still continue to do operations with money lenders for their need of money. Other causes were banks wants to expand their business, agriculture, small scale industries and exports were lagging as industrialisation increasing rapidly and money lenders exploit rural people with charging high interest rates. As government wants to solve this issues and want banks to run their operations successfully so government decide to nationalise the banks. These banks was nationalised under banking Regulation Act 1949. Reserve bank of India was also nationalized in the year 1949.

• Increase in Efficiency

• Nationalisation lead to increase in funds and increasing the economic condition of India.

Once the banks was formed in the country the regular monitoring and regulations need to followed to continue earn profits which earned by banking sector. To provide stability and profitability to nationalised banks, under the leadership of Shri. M Narsimhan government set up a committee to manage the various reforms of Indian banking industry.

From 1991 onwards there was tremendous and rapid changes in Inidan economy. As Globalisation was introduced government open the door of economy and invited foreign and private investors to invest in india. The biggest development was that government gives permission to 10 Private sector in Inida. RBI gave license to 10 private sector banks to run their operations in india.

5. Bank of Punjab

6. IndusInd Bank

Other changes and development during this era were,

• Branches of Foreign Banks are opened in india

• Major part of Indian banking moved online with internet banking 3

• Banks introduced there apps and started there operations online

We will create and maintain a professional environment that invites the ideas of our employees, fosters the confidence of our shareholders, and exceeds the expectations of our customers. To earn the loyalty of employees, customers and the community by operating with integrity and fairness at all times and we have employees who are empowered to build long-term relationships with our customers and provide our shareholders long-term growth and an attractive return on their investment in the bank

KEY EXECUTIVES

• Education Loan

• Social Loan

• Cash Credit ( Loan against stocks/ Book Debts )

• Secured Overdraft ( Loan against Real Estate )

• Recurring Deposit

  1. ATM Rupay Card – Bank Provide Rupar Card to their account holders so they can withdraw their money from any ATM and transfer their payment with that card. This cards are used at any place in ATMs, POS terminal and its used for e-commerce also

• 3. Safe Deposits Vaults – Safe Deposits Facility is available to Bank clients. The Customer has a choice to select from our Five Categories of Safe Deposits Vaults of different sizes. As The Schemes is getting popular a lot. The five categories are A, C, D, F, L

  4. Demand Draft Services - A demand draft is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client, directing another bank or one of its own branches to pay a certain sum to the specified party. A demand draft can also be compared to a cheque. GMC Bank introduced Speedy and nominal charges Demand Draft service to our valued clients. You can get Demand Draft of any centre in all over all India.

  9. SMS Banking – Updates customers regarding any The Gandhidham Mercantile Co- Operative Bank Ltd transaction immediately through SMS alerts like Debit / Credit transactions Alert, Account Balance updates, low balance alerts and bank holidays alerts.

SOCIAL ACTIVITIES

5. Accident Insurance Policy Priemium for all Share Holders

Swot Analysis

• Unity of Directors

• Strong customer panetration

Opportunity

• To become the best bank in terms of facility in located region.

• Acute competition in the market

• Increasing incidence of frauds and misappropriation

Publication - Journal of Tianjin University Science and Technology

Published on - 01 July 2020

Published on - 07 December 2004

Dividend is something shareholders are looking into before investing in any companies shares. Dividend is important for both the parties shareholders as well a companies, companies have to look out all the factors before declaring dividends. In this study the survey is taken of 81 CFOs of the bt-500 companies and their most valuable PSUs in India to find the determinants of the dividend policy decisions of the corporate in India. The responses are taken from CFOs responses by using factor analytic framework on the determinants of dividend policy of corporate India. The results of survey gives us that for shift in long-term sustainable earnings firms target dividend payout ratio and dividend changes. Firm launch their dividend policy to convey information in market their present and future prospects of the firm and thus company made a image of good in the mind of people to buy their shares and this information affects the market value. So the study says that all companies should designed their dividend policy after taking investors preference for dividend.

The world’s business market is comes under perfect competitive market, many theories comes on many concepts related to business. Dividend is very important for shareholders as well as corporate firms. The theory Miller and Modigliani’s theory for dividend irrelevance holds arguments that a dividend payment or omission is same in impact to changes in a firm’s structure. The payment of dividend cannot display that the firm is in good position for firms the free cash flow is mainly matters. The objectives of the study that how dividend policy stress other costs of the firms. In the United States, the explanations of dividend policy have impact on transactions costs, information costs engendering signaling and agency costs, taxes, and the legal system. These costs are similar in many firms under U.S. financial system so it is hard to neglect the effects of these costs. The study gives the results from both comparative and international studies of dividend policy. The results says that the institutional structure including a country's financial system, institutions, culture, and industrial organization is important in determining dividend policy.

LR. 4 - Determinants of dividend policy: a study of the Indian banking sector

LR. 5 - A Study on Dividend Policy and its Impact on the shareholders wealth in selected banking companies in india

Author - S.M. Tariq Zafar, D.S. Chaubey and S.M. Khalid

Author - Subba Reddy Yarram

Publication - National Stock Exchange (NSE) Research Initiative Paper No. 19

Publication - SCMS Journal of Indian Management; Kochi Vol. 15, Iss. 3, 

Published on - 01 September 2018

Published on - 01 January 2010

For a company dividend payouts the primary indicator is profit. But other than profit many other factors are such as cash flows, dept equity ratio, retained earnings, sales growth, share prices of a company, capital expenditure and beta etc. also affect dividend decisions of an organization. According to the theories that there is inverse relationship in debt equity ratio to dividend payout while there is positive relation odf dividend payout to profits, cash flows while Capex, retained earnings, sales growth, share prices, beta, interest paid. For the study a set of 22 key variables that affect the dividend payout of a firm have been taken. The study mainly focus on overview of the important dividend theories and empirically analyze the determinants of dividend behavior of Indian Services sector. The relationship between key variables has been explored with the aid of statistical techniques of Factor analysis. Analysis pending

Dividend is compulsory for all capital organizations. Dividends is paid yearly in India in banking sector. Every sector and every organisation have their different Dividend policies and their different behaviour to pay dividend to their shareholders. Similarly in this study the dividend behaviour of inidan banks is to be researched and explored. For studying we have taken Dividend payments for past five years by nationalized and private banks in India. The study wants to find the average dividend paid and compare the two segments of banking industry. After analysing all the factors it is found that nationalized banks pay more dividend than their private sector banks in India. Another noteworthy point is that, the Indian banking sector follows a stable dividend payout policy. The study tells us that the dividend payments are showing a downward trend in past two years, though they were wonderful in the year 2013.

LR. 10 - Impact of profitability on dividend policy of public and private sector bank in India

INTRODUCTION TO DIVIDEND

Dividends are a portion of company earnings regularly paid to shareholders, paid as some fixed amount per share price. A corporation makes the payment of dividend to its shareholder on a regular basis (usually quarterly) these are essentially the shareholder’s portion of a company’s profits. This is the shareholders portion of income which they receive from corporation as their part of income in company’s share.

NATURE OF DIVIDEND

Dividends are very attractive to many investors as they are steady and easy source of income from low risk investments.

The nature of dividends is to provide regular income at low risk investment to their shareholders. The established and stable company with less free space to grow would like to pay the dividend while the companies who grow rapidly would retain their earnings and did not like to pay Dividend or pay less dividend.

Benefit to shareholders/Member of GMCB

• The membership of GMCB can be easily obtained by purchasing 5 shares each of Rs 100.

• Bank has tie up with New India Insurance for accident insurance of share member.

• Share-holders gets free body check-up once in 2 year.

1. Member To Member : It is simple type of share transfer here shareholder sells his/her shares to another shareholder of GMCB, as a resuly shareholder who sell the share lose the membership of

GMCB.

Dividend decision of the firm is one of the crucial decisions for financial managers. The important aspect of dividend policy is to decide that how much amount of retained earnings is to be retained and how much the amount distributed as dividend to shareholders. One of the most significant internal sources of financing for the growth firms is retained earnings. On the other side in the view point of shareholders, they think that dividends is desirable form of income for them to increase their current return. Dividend policy balances the desire of shareholders dividend and firms need for funds for growth.

As per the dividend models, some practitioners believe that the shareholders are not concerned with the firm’s dividend policy and can realize cash by selling their shares if required. While the others believed that, dividends are relevant and have a bearing on the share prices of the firm. This gave rise to the following models:

Normal Firms: All firms don’t have that much surplus generating investment opportunities. After fulfilling of super profitable investments normal firms on their investment rate of return equal to the cost of capital. For the normal firms r=k then the dividend policy have no effect on the firm value. Here the firm doesn’t know how much to be retained and how much is distributed among the shareholders. Thus there is no unique optimum payout ratio for normal firm. The payout ratio varies form 0 to 100 percent.

Declining firms: Whenever the firms doesn’t have any profitable investments opportunities. These firms would earn on their investment rates of returns less than the minimum required rate from shareholders. Shareholder want earning of these firms should be distributed to them so they can spend it or invest it to other firm who are having higher earnings than declining firms. In declining firms the rate of return is less than opportunity cost of capital. So declining firms should payout their earning fully in shareholders. Therefore the payout ratio is always 100% in declining firms.

Assumptions of Walter’s Model

• All the financing is done through the retained earnings, no external financing is used

• The rate of return (r) and the cost of capital (k) remain constant irrespective of any changes in the investments

• All the earnings are either retained or distributed completely among the shareholders.

• The earning per share ( EPS ) and Dividend per share ( DPS ) remains constant

• The firm has a very long and infinite lifetime

Criticism of Walter’s Model

• This model of share valuation mixes Dividend policy with investment policy of the firm. It is assumed that the investment opportunities of the firm are financed through the retained earnings. And no external financing such as debt or equity is used. When such a situation is comes up than either investment policy or dividend policy or both will be the below standards.

• It is assumed that Walter model is only applicable to all equity firms. This model is also assumed that r is constant. In fact r decreases as more and more investment is made. This reflects that the firm has made higher investment made first and poorer investment made later.

But in case, the company retains the earnings; then the investors can expect a dividend in future. But the future dividends are uncertain with respect to the amount as well as the time, i.e. how much and when the dividends will be received. Thus, an investor would discount the future dividends, i.e. puts less importance on it as compared to the current dividends

It is revealed that under gorden model:

Every model is always based on some assumption and there are some criticism of that model also.

Assumptions of Walter’s Model

• The firm is all equity firm and it has no debt

• Corporate taxes do not exist

• Retention ratio once decided remains constant

Criticism of Walter’s Model

• It is assumed that the cost of capital (K) remains constant but, however, it is not realistic in the real life situations, as it ignores the business risk, which has a direct impact on the firm’s value.

Thus, Gordon model posits that the dividend plays an important role in determining the share price of the firm

Under perfect conditions this is a fair transaction so the wealth of shareholders will remain unaffected.

• The firms does not have sufficient cash to pay dividends, and therefore, it issues new shares to finance the payment of dividends. To follow this situation two transactions takes place, first one is exiting shareholders gets cash in the form of dividends, but they loss the an equal amount of capital loss as the value of current assets reduces. Second transaction is that the new shareholders part with their cash to the company in exchange for new shares at a fair price per share. The existing shareholders have to share their part of claim on assets with the new shareholders. Both transactions are legal so the value of the firm will remain unaltered after these transactions.

Assumptions of Miller and Modigliani Hypothesis

• It is assumed that a company follows a constant investment policy. This implies that there is no change in the business risk position and the rate of return on the investments in new projects.

• There is no uncertainty about the future profits, all the investors are certain about the future investments, dividends and the profits of the firm, as there is no risk involved.

Criticism of Miller and Modigliani Hypothesis

• The assumption of certain future profits is uncertain. The future is full of uncertainties, and the dividend policy does get affected by the economic conditions.

Thus, the MM Approach posits that the shareholders are indifferent between the dividends and the capital gains, i.e., the increased value of capital assets.

DECLARATION OF DIVIDEND

• Irregular Dividend Policy: In this type of dividend policy, companies don’t pay dividend regularly due to various reasons, such as lack of liquidity, volatility in future earnings, etc. In fact, the companies following this dividend strategy are exactly opposite in nature to the companies with regular dividend policy – they don’t have a history of stable earnings. In other words, investors in these companies are never sure whether or not they will be any dividend during a year, and if yes, what amount will be paid as a dividend.

• Stable Dividend Policy: In this type of dividend policy, the investors receive dividends consistently, although the amount of dividend may vary from year to year. Basically, the companies decide to distribute a certain portion of the profit to the shareholders every year in the form of dividends. These companies are mostly matured and don’t intend to pursue any strong growth strategy. Further, the policy is best suited for investors for whom a steady source of income today is more important than capital appreciation.

The rate of dividend of any bank should be decided by shareholders in Annual General Meeting. Generally Indian banks organize an AGM to give information about banks future projects and other financial decision for upcoming year.

DIVIDEND ANALYSIS

Chart of Analysis of EPS and DPS of GMC Bank for last 10 years

Analysis Dividend pay-out and Retention of GMC bank of last 10 years

OBJECTIVES OF STUDY

The main objective to conduct this research is to understand dividend policy of bank and the shareholders view on current dividend policy of GMC Bank

SCOPE OF THE STUDY

The project scope involves the study of the Dividend policy of the banks in India. Understand the Dividend policy and the payment system in one of the banks in Gandhidham. The project scope also involves the shareholders view about dividend policy of GMC Bank. This includes their perception towards dividend, what they do with their income received from dividend and are shareholders satisfies with the current dividend policy of bank

• Survey has been done of the shareholders of the GMC Bank.

• The question was presented in one to one interview woth each respondents

SAMPLR SIZE

The sample size has been 30 Shareholders. Conclusions had been arrived at using the response of the questionnaire.

DATA COLLECTION METHOD

• Primary Data: Primary data means that are collected by different techniques like questionnaire, Depth interview, Survey Schedules etc. In this project, primary data has been collected by the means of questionnaire

Objective 2: Are shareholders satisfied with the dividend they received

Objective 5: How they spend income which they receive from dividend

Objective 8: Shareholder ratings for Dividend Payout compared to other banks

Objective 11: Shareholder future expectation of dividend rate

Objective 14: Shareholder satisfied with RBI’s decision not to declare dividends in Covid-19 pandemic year.

• 25 – 35 Years

• 35 – 45 Years

2. No

How satisfied are you with the dividend received from GMC Bank?

5. Very Satisfied

Would you like GMC Bank to make any changes to their existing dividend policy?

1. Less than 10 %

2. 10% to 20%

1. Invest it in some other mode

2. Use it for Personal Expenses

2. No

3. Can’t Say

4. Somewhat Disagree

5. Totally Agree

4. Bad

5. Very Bad

4. Bad

5. Very Bad

How would you rate the ease of transfer of shares of GMC Bank?

1. Very Easy

How much is your expectation about future dividend form GMC Bank?

1. 10 to 15%

1. Mostly Agree

2. Agree

1. Mostly Agree

2. Agree

Website Reference

https://gocardless.com/guides/posts/dividend-policy-types/