HDFC Bank, the country’s leading private sector lender, is planning to reward its shareholders with a bonus issue and a special interim dividend. These proposals will be considered at the bank’s upcoming board meeting on July 19. This marks a significant milestone for the bank, as it will be issuing bonus shares for the first time in its history.
In a regulatory filing, the bank said, “The board would also consider the following proposal: declaration of a special interim dividend on the equity shares of the bank for FY 2025–26 and issue of bonus shares in accordance with the applicable provisions and subject to approval of shareholders of the bank.”
While this is HDFC Bank’s first bonus issue, its peer ICICI Bank had issued a 1:10 bonus in May 2017. A bonus issue, or bonus shares, is when a company distributes additional shares to existing shareholders free of cost, usually in proportion to the shares they already own. For instance, in a 1:1 bonus, shareholders receive one additional share for every one they hold.
What bonus share issue means for investors
For investors, this means getting more shares without paying anything. It typically leads to better market liquidity, as the number of shares in circulation increases. Investors often see a bonus issue as a sign of management confidence and a reward for staying invested. Although the number of shares increases, the total value of a shareholder’s holding remains the same, which results in a lower share price — making the stock more accessible to smaller investors. Moreover, bonus shares are not taxed at the time of issuance in many jurisdictions; tax is usually applicable only when they are sold.
For the company, a bonus issue indicates strong reserves and a positive outlook on future earnings. It avoids cash outflows, unlike dividends, and helps preserve funds for growth. A lower share price post-bonus may attract more investors, enhancing the company’s market reach and potential for future fundraising.
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