financial management unit v

8/2/2019 Financial Management UNIT V

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UNIT-VUnit V: Dividend Policy: Stable Dividend Dividend Theories - FactorsInfluencing Dividend Policy Issues in Dividend Policy - Bonus SharesDividend Policy:A Dividend policy is the company's stance on how it will dispense itsearnings.. It will include in its description the amount paid to shareholders( if any) or if the company will retain the profits.. It will also outline when the dividends will be paid out , how much, and how frequent.. The profit,which is any positive gain, from any investment, or business venture, willbe either dispersed to investors or shareholders, or it may be re-investedback into the company. The Dividend policy will explain exactly if theprofit earnings will go the shareholders in full, or a portion may beobtained by the company for re-investment.

Dividend policy is the policy used by a company to decide how much itwill pay out to shareholders in dividends. In your financial accountingcourse, you learn that after deducting expense from the revenue, acompany generates profit. Part of the profit isKept in the company as retained earnings and the other part is distributedas dividends to shareholders. From the share valuation model, the value ofa share depends very much on the amount of dividend distributed toshareholders. Dividends are usually distributed in the form of cash (cashdividends) or share (share dividends which are beyond the remit of thisarticle). When a company distributes a cash dividend, it must havesufficient cash to do so. This creates a cash flow issue. Profit generated maynot be in the form of cash. You may verify this by looking at the cash flow statement of a company. A company may have profit of $400 million but the cash only increase by $190 million in a financial year. This is a concernto the management as insufficient cash may mean the company is unable to distribute a dividend. Investors earn returns from their shares in the formof capital gains and dividend yield. Dividend yield is an important ratio in evaluating investment. For example, Hang Seng Bank distributed a $6.30dividend per share in 2008. If you purchased shares in Hang Seng Bank at

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$87 per share, the companys dividend yield was 7.2% ($6.30/$87) which ismuch higher than the bank deposit rate. Dividend payout ratio is anotherimportant indicator:

Dividend payout ratio = Dividend per share Earnings per share

This ratio indicates how much of the profit is distributed as dividend toshareholders. The higher the dividend payout ratio, the more attractive theshare is to shareholders.

Stability Dividends:

Stability Dividends is considered a desirable policy by the management ofmost companies in practice. Shareholders also seem generally to favor thispolicy and value stable dividends higher than the fluctuating ones. Allother things being the same, the stable dividend policy may have a positiveimpact on the market price of the share.Stability of dividends also means regularity in paying some dividendannually, even though the amount of dividend may fluctuate over years,and may not be related with earnings. There are a number of companies,which have records of paying dividends for a long, unbroken period. Moreprecisely, stability of dividends refers to the amounts paid out regularly.Three forms of such stability may be distinguished:

Constant dividend per share or dividend rateConstant payoutConstant dividend per share plus extra dividend.

Constant Dividend per Share or Dividend Rate:In India, companies announce dividend as a per cent of the paid-up capitalper share. A number of companies follow the policy of paying a fixedamount per share or a fixed rate on paid-up capital as dividend every year,irrespective of fluctuations in the earnings. This policy does not imply thatthe dividend per share or dividend rate will never be increased. When theGet MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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company reaches new level of earnings and expects to maintain them, theannual dividend per share or dividend rate may be increased. The earningsper share and the dividend per share relationship under this policy.

EPS

EPSandDPS(Rs.) Time (Years)

Constant dividend per share policy

DPS

It is easy to follow this policy when earnings are stable. However, if theearnings pattern of a company shows wide fluctuations, it is difficult tomaintain such a policy. With earnings fluctuating from year to year, it is essential for a company, which wants to follow this policy to build upsurpluses in years of higher than average earnings to maintain dividends inyears of below average earnings. In practice, when a company retainsearnings in good years for this purpose, it earmarks this surplus asdividend equalization reserve. These funds are invested in current assetslike tradable (markable) securities, so that they may easily be convertedinto cash at the time of paying dividends in bad years.

A constant dividend per share policy puts ordinary shareholders at parwith preference shareholders irrespective of the firms investmentopportunities or the preferences of shareholders. Those investor who havedividends as the only source of their income may prefer the constantdividend policy. They do not accord much importance to the changes inshare prices. In the long run, this may help to stabilize the market price of the share.



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Constant Payout:The ratio of dividend to earnings is known as payout ratio. Somecompanies may follow a policy of constant payout ratio i.e., paying s fixedpercentage of net earnings every year. With this policy the amount ofdividend will fluctuate in direct proportion to earnings. If a companyadopts a 40 per cent payout ratio, then 40 per cent of every rupee of netearnings Rs 2 per share, the dividend per share will be Re 0.80 and if itearns Rs.1.50 per share the dividend per share will be Re 0.60. the relationbetween the earnings per share and the dividend per share under thispolicy.

EPS

EPS and DPS(Rs)

DPS

Time (Years)Dividend policy of constant payout ratio

This policy is related to a companys ability to pay dividends. If thecompany incurs losses, no dividends shall be paid regardless of the desiresof shareholders. Internal financing with retained earnings is automatic

when this policy is followed. At any given payout ratio, the amount ofdividends and the additions to retained earnings increase with increasingearnings and decrease with decreasing earnings. This policy does not put



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any pressure on a companys liquidity since dividends are distributed onlywhen the company has profits.

Constant Dividend per Share plus Extra Dividend:For companies with fluctuating earnings, the policy to pay a minimumdividend per share with a step-up feature is desirable. The small amount ofdividend per share is fixed to reduce the possibility of ever missing adividend payment. By paying extra dividend (a number of companies inIndia pay an interim dividend followed by a regular, final dividend) inperiods of prosperity, an attempt is made to prevent investors fromexpecting that the dividend amount. This type of policy enables a companyto pay constant amount of dividend regularly without a default and allowsa great deal of flexibility for supplementing the income of shareholdersonly when the companys earnings are higher than the usual, withoutcommitting itself to make larger payments as a part of the future itself tomake larger payments as a part of the future fixed dividend. Certainshareholders like this policy because of the certain cash flow in the form ofregular dividend and the option of earning extra dividend occasionally.

We have discussed three forms of stability of dividends. Generally, whenwe refer to a stable dividend policy, we refer to the first form of payingconstant dividend per share. A firm pursuing a policy of stable dividendmay command a higher price for its shares than a firm, which varies dividend amount with cyclical fluctuations in the earnings.

Merits of stability of Dividends:The stability of dividends has several advantages as discussed below:

Resolutioninvestors uncertainty.


of


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Investors desire forcurrent income.

Institutionalinvestors requirements.

Raisingfinances.

additional

Resolution of investors uncertainty:When a company follows a policy of stable dividends, it will not changethe amount of dividends if there are temporary changes in its earnings.Thus, when the earnings of a company fall and it continues to pay sameamount of dividend as in the past, it conveys to investors that the future ofthe company is brighter than suggested by the drop in earnings. Similarly,the amount of dividends is increased with earnings level only when it ispossible to maintain it in future. On the other hand, if a company follows apolicy of changing dividends with cyclical changes in the earnings,shareholders would not be certain about the amount of dividends.

Investors desire for current IncomeThere are many investors, such as old and retired persons, women etc.,who desire to receive regular periodic income. They invest their savings inthe shares with a view to use dividends as a source of income to meet theirliving expenses. Dividends are like wages and salaries for them. Theseinvestors will prefer a company with stable dividends to the one withfluctuating dividends.

Institutional investors requirements:



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Financial, educational and social institutions and unit trusts also investfunds in shares of companies. In India, financial institutions such as IFCI,IDBI, LIC and UTI are some of the largest investors in corporate securities.Every company is interested to have these financial institutions in theshares of those companies, which have a record of paying regulardividends. These institutional investors may not prefer a company, whichhas a history of adopting an erratic dividend policy. Thus, to cater therequirement of institutional investors, a company prefers to follow a stabledividend policy.

Raising additional finances:A stable dividend policy is also advantages to the company in its efforts to

raise external finances. Stable and regular dividend policy tends to makethe share of a company as quality investment rather than a speculation.Investors purchasing these shares intend to hold them for a long period oftime. The loyalty and goodwill of shareholders towards a companyincreases with stable dividend policy. They would be more receptive to anoffer by the company for further issues of shares. A history of stabledividends serves to spread ownership of outstanding shares more widelyamong small investors, and thereby reduces the chance of loss of control.The persons with small means, in the hope of supplementing their income,usually purchase shares of the companies with a history of paying regular

dividends. A stable dividend policy also helps the sale of debentures andpreference shares. The fact that the company has been paying dividendregularly in the past is a sufficient assurance to the purchasers of thesesecurities that no default will be made by the company in paying theirinterest or preference dividend and returning the principal sum. Thefinancial institutions are the largest purchasers of these securities. Theypurchase debentures and preference shares of those companies, whichhave a history of paying stable dividends.

Danger of Stability of Dividends:Get MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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The greatest danger in adopting a stable dividend policy is that once it isestablished, it cannot be changed without seriously affecting investorsattitude and the financial standing of the company. If a company, with a pattern of stable dividends, misses investors more severe than the failureto pay dividend by a company with unstable dividend policy. Thecompanies with dividend income to meet their living and operatingexpenses. A cut in dividend is considered as a cut in salary. Because of theserious depressing effect on investors due to a dividend cut, directors haveto maintain stability of dividends during lean years even though financial prudence would indicate elimination of dividends or a cut in it.Consequently, to be on the safe side, the dividend rate should be fixed at aconservative figure so that it may be possible to maintain it even in lean periods of several years. To give the benefit of the companys prosperityextra or interim dividend, can be declared. When a company fails to payextra dividend, it does not have a depressing effect on the investors as thefailure to pay a regular dividend does.

Theories of Dividend Policy:i)ii) Dividend Relevance TheoriesDividend Irrelevance Theories

Dividend Relevance Theory:The dividend is a relevant variable in determining the value of the firm, it implies that there exists an optimal dividend policy, which the managersshould seek to determine, that maximizes the value of the firm. There arethree models, which have been developed under this approach. These are:

a)b)c)d)e)

Traditional ModelWalters ModelGordons Dividend Capitalisation ModelBird-in-hand TheoryDividend Signaling Theory



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f) Agency Cost Theory

a) TRADITIONALMODEL:MP is positively related to higher dividends. Thus MP wouldincrease if dividends are higher and decline if dividends are lower.

P = m (D + E/3)Where,

P = Market pricem = MultiplierD = Dividend per shareE = Earnings per share

b) GORDONS DIVIDEND CAPITALISATION MODELAssumptions : Firm is all-equity, RE are used to finance projects, r and kare constant, there are no taxes, b once decided is constant.Gordon put forward the following valuation model:P0 = E 1+ (1 b)

k - brwhere,P0 = Price per share at the end of the year 0E1 = Earnings per share at the end of year 1(1 b) = Fraction of earnings the firm distributes by way of earnings b = Fraction of earnings the firms ploughs backk = Rate of return required by the shareholdersr = Rate of return earned on investments made by the firmbr = Growth rate of earnings and dividends

c) BIRD-IN-HAND THEORYGet MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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John Lintner propounded this theory in 1962 and Myron Gordon in 1963. The shareholders are not entitled to any fixed return.The return to the shareholders is in the form of dividends and capital gains.Current dividends are relatively certain compared to future capital gains.According to this theory shareholders are risk averse and prefer to receivedividends in the present time period to future capital gains.Modigliani and Miller termed this argument as bird-in-hand fallacy.

d) DIVIDEND SIGNALLING THEORYManagers have greater access to inside information about the company.They may share this information with the shareholders through anappropriate dividend policy. Constant or increasing dividends conveypositive signals about the future prospects of thecompany resulting in an increase in share price. Similarly, absence ofdividends or decreasing dividends convey negative signal resulting indecline in share price. A liberal dividend policy by reducing the agencycosts may lead to enhancement of the shareholder value.

2. DIVIDEND IRRELEVANCE THEORY:These theories contend that there are two components of shareholderreturns

a) Dividend Yield (D / P0)b ) Capital Yield (P1/ P 0 ) / P 0

Suppose a firm issues a Rs.10 par value share at a premium of Rs.90.In other words, the issue price is Rs.100. If the firm declares a dividend ofRs.3 (the dividend yield is 3%) price at the end of next year is s Rs.115, theGet MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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capital yield is (115 100) / 100 = 15 per cent. The total return to theshareholders is 18 per cent.These theories, which argue that dividends are not relevant in determiningthe value of the firm, are:

i. Residual Theoryii. Modigliani and Miller (M&M) Modeliii. Dividend Clientele Effectiv. Rational Expectations Model

i. RESIDUAL THEORY:According to this theory a firm will only pay dividends fromresidual earnings, that is, from earnings left over after all thesuitable investment opportunities have been financed.

ii. MODIGILANI AND MILLER (M&M) Model:

According to the model, it is only the firms investment policythat will have an impact on the share value of the firm and hence should be given more importance.

The current market price of the share is equal to the discountedvalue of the dividend paid and the market price at the end of the period.P0 =_1___(D1+ P 1)

(1 + k e)Where,P0 = Current market price of the share (t = 0)P1 = Market price of the share at the end of the period (t = 1)D1 = Dividends to be paid at the end of the period (t=1)ke = Cost of equity capital

With no external financing the total value of the firm will be as follows: nP0 =_1___(nD1+ nP 1)

(1 + ke )Simplifying the above equation, we getGet MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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n1 1P = I E + nD1Where,

I = Total investment requirednD1 = Total dividends paidE = Earnings during the period(E - nD1 ) = Retained earningsSubstituting this value of the new shares in the above equation, we getnP0 = 1 ___ [nD1 + (n + n1)P1 - I + E - nD1 ]

(1 + ke )= nD1 + (n + n1 )P1 - I + E - nD1]

(1 + ke )nP0 = (n + n1 )P1 - I + E

(1 + ke )

Thus, according to the M&M model, the market value of the share is notaffected by the dividend policy and this is clear from the last equationabove.

iii. DIVIDEND CLIENTELE EFFECT: According to this theory,dividend policy is irrelevant in determining the firms value.Different firms may follow different dividend policies dependingupon their own needs and circumstances.One firm may decide on a higher payout ratio whereas others maydecide on lower dividend payout. Similarly, different shareholdersmay have different needs some may prefer current dividendswhereas current dividends whereas others may be more interestedin capital gains. Those investors who prefer current dividendswould like to become shareholders in companies which declaregenerous dividends whereas those investors who are moreinterested in capital gains would folk to companies havingrelatively lower payout ratios.



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iv. RATIONAL EXPECTATIONS MODEL: According to this modelthere would be no effect of dividend declaration on the marketprice as long as the dividend declared is in line with the expecteddividends. If dividend


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the ability to pay dividend. The liquidity of a firm depends very much onthe investment and financial decisions of the firm which in turn determinesthe rate of expansion and the manner of financing. If cash position is weak,stock dividend will be distributed and if cash position is good, companycandistributethecashdividend.

4. Extent of share Distribution. Nature of ownership also affects thedividend decisions. A closely held company is likely to get the assent of theshareholders for the suspension of dividend or for following a conservativedividend policy. On the other hand, a company having a good number ofshareholders widely distributed and forming low or medium incomegroup, would face a great difficulty in securing such assent because theywillemphasisetodistributehigherdividend.

5. Needs for Additional Capital. Companies retain a part of their profitsfor strengthening their financial position. The income may be conserved formeeting the increased requirements of working capital or of futureexpansion. Small companies usually find difficulties in raising finance fortheir needs of increased working capital for expansion programmes. Theyhaving no other alternative, use their ploughed back profits. Thus, suchCompanies distribute dividend at low rates and retain a big part of profits.

6. Trade Cycles. Business cycles also exercise influence upon dividendPolicy. Dividend policy is adjusted according to the business oscillations.During the boom, prudent management creates food reserves forcontingencies which follow the inflationary period. Higher rates ofdividend can be used as a tool for marketing the securities in an otherwisedepressed market. The financial solvency can be proved and maintained bythe companies in dull years if the adequate reserves have been built up.

7. Government Policies. The earnings capacity of the enterprise is widelyaffected by the change in fiscal, industrial, labour, control and othergovernment policies. Sometimes government restricts the distribution ofdividend beyond a certain percentage in a particular industry or in allspheres of business activity as was done in emergency. The dividend policyhas to be modified or formulated accordingly in those enterprises.Get MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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8. Taxation Policy. High taxation reduces the earnings of he companiesand consequently the rate of dividend is lowered down. Sometimesgovernment levies dividend-tax of distribution of dividend beyond a

certain limit. It also affects the capital formation. N India, dividendsbeyond 10 % of paid-up capital are subject to dividend tax at 7.5 %.

9. Legal Requirements. In deciding on the dividend, the directors take thelegal requirements too into consideration. In order to protect the interestsof creditors an outsiders, the companies Act 1956 prescribes certainguidelines in respect of the distribution and payment of dividend.Moreover, a company is required to provide for depreciation on its fixedand tangible assets before declaring dividend on shares. It proposes thatDividend should not be distributed out of capita, in any case. Likewise,contractual obligation should also be fulfilled, for example, payment ofdividend on preference shares in priority over ordinary dividend.

10. Past dividend Rates. While formulating the Dividend Policy, thedirectors must keep in mind the dividend paid in past years. The currentrate should be around the average past rat. If it has been abnormallyincreased the shares will be subjected to speculation. In a new concern, thecompany should consider the dividend policy of the rival organization.11. Ability to Borrow. Well established and large firms have better accessto the capital market than the new Companies and may borrow funds fromthe external sources if there arises any need. Such Companies may have abetter dividend pay-out ratio. Whereas smaller firms have to depend ontheir internal sources and therefore they will have to built up good reservesby reducing the dividend payout ratio for meeting any obligation requiringheavyfunds.

12. Policy of Control. Policy of control is another determining factor is sofar as dividends are concerned. If the directors want to have control oncompany, they would not like to add new shareholders and therefore,declare a dividend at low rate. Because by adding new shareholders theyGet MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/orwww.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected] [email protected] get updates


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fear dilution of control and diversion of policies and programmes of theexisting management. So they prefer to meet the needs through retainedearing. If the directors do not bother about the control of affairs they willfollow a liberal dividend policy. Thus control is an influencing factor inframingthe dividend policy.

13. Repayments of Loan. A company having loan indebtedness are vowedto a high rate of retention earnings, unless one other arrangements aremade for the redemption of debt on maturity. It will naturally lower downthe rate of dividend. Sometimes, the lenders (mostly institutional lenders)put restrictions on the dividend distribution still such time their loan isoutstanding. Formal loan contracts generally provide a certain standard ofliquidity and solvency to be maintained. Management is bound to hoursuch restrictions and to limit the rate of dividend payout.

14. Time for Payment of Dividend. When should the dividend be paid isanother consideration. Payment of dividend means outflow of cash. It is,therefore, desirable to distribute dividend at a time when is least needed bythe company because there are peak times as well as lean periods ofexpenditure. Wise management should plan the payment of dividend insuch a manner that there is no cash outflow at a time when the undertakingisalreadyinneed ofurgentfinances.

15. Regularity and stability in Dividend Payment. Dividends should bepaid regularly because each investor is interested in the regular payment ofdividend. The management should, in spite of regular payment ofdividend, consider that the rate of dividend should be all the mostconstant. For this purpose sometimes companies maintain dividendequalization Fund.

Bonus shares:Shares issued by a "healthy" company to existing shareholders without anycost. They are issued in proportion to the existing holding of a shareholder.Only if a company has accumulated a surplus in free reserves (retained



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profits) it can issue bonus shares. As bonus issues add to the number oftotal shares of the company, the Earnings Per Share ratio decreases.A company issue shares in lieu for cash or sometimes against transfer ofphysical or intellectual property to the company's hands.But bonus shares are issued to the existing shareholders by converting freereserves or share premium account to equity capital without taking anyconsideration from investors.Bonus shares do not directly affect a company's performance.Bonus issue has following major effects.1. Share capital gets increased according to the bonus issue ratio.2. Liquidity in the stock increases.3. Effective Earnings per share, Book Value and other per share valuesstand reduced.4. Markets take the action usually as a favorable act. 5. Market price gets adjusted on issue of bonus shares.6. Accumulated profits get reduced.

Issue of bonus shares:

Bonus shares are issued by converting the reserves of the company into sharecapital. It is nothing but capitalization of the reserves of the company. There aresome conditions which need to be satisfied before issuing Bonus shares:1) Bonus shares can be issued by a company only if the Articles ofAssociation of the company authorizes a bonus issue. Where there is noprovision in this regard in the articles, they must be amended by passingspecial resolution act at the general meeting of the company.2) It must be sanctioned by shareholders in general meeting onrecommendationsofBOD ofcompany.

3) Guidelines issue by SEBI must be complied with. Care must be takenthat issue of bonus shares does not lead to total share capital in excess ofthe authorized share capital. Otherwise, the authorized capital must beincreased by amending the capital clause of the Memorandum of



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association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions forissue of bonus shares. If the company is listed on the stock exchange, thestock exchange must be informed of the decision of the board to issuebonus shares immediately after the board meeting. Where the bonus sharesare to be issued to the non-resident members, prior consent of the ReserveBank should be obtained.

Only fully paid up bonus share can be issued. Partly paid up bonus sharescannot be issued since the shareholders become liable to pay the uncalledamount on those shares.It is important to note here that Issue of bonus shares does not entailrelease of companys assets. When bonus shares are issued/credited asfully paid up out of capitalized accumulated profits, there is distribution ofcapitalized accumulated profits but such distribution does not entailrelease of assets of the company.Issue ofBonusSharesby PublicSector UndertakingsIt has come to the notice of the Government that a number of CentralGovernment Public Sector Undertakings are carrying substantial reservesin their balance sheets against a relatively small paid up capital base. The question of the need for these enterprises to capitalize a portion of theirreserves by issuing Bonus Shares to the existing shareholders has beenunder consideration of the Government. The issue of Bonus Shares helps inbringing about at proper balance between paid up capital and accumulated reserves, elicit good public response to equity issues of the publicenterprises and helps in improving the market image of the company.Therefore, the Government has decided that the public enterprises, whichare carrying substantial reserves in comparison to their paid up capital soldissue Bonus Shares to capitalize the reserves for which the certainnorms/conditions and criteria may be followed and fulfilled. There aresome SEBI guidelines for Bonus issue which are contained in ChapterXV of SEBI( Disclosure & Investor Protection) Guidelines, 2000 whichshould be followed in deciding the correct proportion of reserves to becapitalized by issuing Bonus Shares.



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Private sector banks, whether listed or unlisted, can also issue bonus andrights shares without prior approval from the Reserve Bank of India.Liberalising the norms for issue and pricing of shares by private sectorbanks, the RBI said that the bonus issue would be delinked from the rightsissue. However, central bank approval will be required for Initial Public Offerings (IPOs) and preferential shares. These measures are seen as part ofthe RBI's attempt to confine itself to banking sector regulation and leave thecapital market entirely to the SEBI. Under the guidelines, private sectorbanks have also been given the freedom to price their subsequent issuesonce their shares are listed on the stock exchanges. The issue price shouldbe based on merchant bankers' recommendation, the RBI has said. It meansthough RBI approval is not required but pricing should be as per SEBIguidelines. The RBI, however, clarified that banks will have to meet SEBI'srequirements on issue of bonus shares. As per current regulations, privatesector banks whose shares are not listed on the stock exchange are requiredto obtain prior approval of the RBI for issue of all types of shares such as public, preferential, rights or special allotment to employees and bonus.Banks whose shares are listed on the stock exchanges need not seek priorapproval of the RBI for issue of shares except bonus shares, which was tobe linked with rights or public issues by all private sector banks.


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