Signed by Usha Janakiraman, Chief General Manager of RBI, a notification by the regulator released on Friday directs commercial and cooperative banks not to give dividends for the current fiscal.
The notification reads “In view of the ongoing stress and heightened uncertainty on account of COVID-19, it is imperative that banks continue to conserve capital to support the economy and absorb losses.”
It further says “In order to further strengthen the banks’ balance sheets, while at the same time support lending to the real economy, it has been decided that banks shall not make any dividend payment on equity shares from the profits pertaining to the financial year ended March 31, 2020.”
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting held on Friday, December 4, 2020 decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.
Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.
The MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
Talking about the global economy, RBI noted the outlook for Q4 (October-December) of 2020 is overcast with a surge in COVID-19 infections in a second wave across Europe, the US and major emerging market economies (EMEs), with accompanying lockdowns.
In India, the data release of the National Statistical Office (NSO) on November 27 showed a contraction of 7.5 per cent in real GDP in Q2:2020-21 (July-September). Riding on the favourable monsoon, the outlook for agriculture remains bright, it noted.
RBI also underlined that CPI inflation rose sharply to 7.6 per cent in October 2020, with food inflation surging to double digits.
Domestic financial conditions, however, remained easy in October-November and systemic liquidity continued to be in large surplus, it felt.
Turning to the growth outlook, the recovery in rural demand is expected to strengthen further, while urban demand is also gaining momentum as unlocking spurs activity and employment, especially of labour displaced by COVID-19, claimed a RBI release.