Considering the economic shock caused by the COVID-19 pandemic, the Reserve Bank of India (RBI) on Friday asked scheduled commercial banks and cooperative banks not to pay any dividends for the financial year ended March 2020.
Continuing the stress and uncertainty caused by the pandemic, RBI said it is important that banks continue to conserve capital to support the economy and absorb losses, if any.
The decision is based on review of the September quarter (Q2) financial performance of banks.
In response to the pandemic, RBI has focused on resolution of stress among borrowers, and facilitating credit flow to the economy, while ensuring financial stability, RBI Governor Shaktikanta Das said.
“In continuation of this effort and to help banks conserve capital, while creating room for fresh lending, it has been decided after a review that commercial and cooperative banks will retain the profits and not make any dividend pay-out from the profits pertaining to financial year 2019-20,” he said.
RBI is expected to issue guidelines on the measure shortly.
In April, RBI had announced that scheduled commercial banks and cooperative banks shall not make any dividend pay-outs from profits pertaining to the financial year ended March 31, 2020, until further instructions, which would be reassessed based on financial results of banks for the quarter ending September 30, 2020.
Unlike banks, RBI said, currently there are no guidelines in place with regard to distribution of dividend by non-banking financial companies (NBFCs).
“Keeping in view the increasing significance of NBFCs in the financial system and their interlinkages with different segments, it has been decided to formulate guidelines on dividend distribution by NBFCs,” he said.