In a major decision RBI has asked all banks including co-operative banks and UCBs to hold the payment of dividends for the year.
In a letter signed by Saurav Sinha, CGM-in-Charge and addressed to Commercial Banks and Cooperative Banks, RBI says “it has been decided that all banks shall not make any further dividend payouts from the profits pertaining to the financial year ended March 31, 2020 until further instructions.”
RBI says that that it is a time of heightened uncertainty caused by COVID-19. It is important that banks conserve capital to retain their capacity to support the economy and absorb losses.
Accordingly, it has been decided that all banks shall not make any further dividend payouts.
Some experts have reacted to RBI move calling it a judicious decision. It would help them protect the balance sheets, they added.
There are also some shareholders who have not liked the idea with one of them asking NAFCUB-the apex body of UCBs in the country if they support the RBI move.
According to Business Standard top private banks paid Rs 6,600 crore in dividend during FY19; some have announced interim dividend for FY20 but haven’t paid them so far.
Nafcub, meanwhile is working on the the data of total dividend paid by co-op banks last year.
The letter of RBI on the subject follows:
All Commercial Banks and All Cooperative Banks,
Madam / Dear Sir,
Declaration of dividends by banks
Banks in India have been granted general permission to declare dividends, subject to compliance with the guidelines laid out in terms of circular DBOD.NO.BP.BC.88/ 21.02.067/2004-05 dated May 4, 2005 and other associated circulars.
2. In an environment of heightened uncertainty caused by COVID-19, it is important that banks conserve capital to retain their capacity to support the economy and absorb losses. Accordingly, it has been decided that all banks shall not make any further dividend payouts from the profits pertaining to the financial year ended March 31, 2020 until further instructions. This restriction shall be reassessed by the Reserve Bank based on the financial results of banks for the quarter ending September 30, 2020.
Yours faithfully,
(Saurav Sinha)
Chief General Manager-in-Charge