Commercial, cooperative banks don’t have to pay dividends for FY20

In a major relief to state-run commercial banks and cooperative banks, RBI Governor Shaktikanta Das on Friday announced that the lenders do not have to pay dividends for the financial year 2019-20 and retain all of their profits.

The decision has been taken to help banks conserve capital while they continue with fresh lending.

“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 co-operative banks will retain the profits and not make any dividend pay-out from the profits pertaining to financial year 2019-20,” Das said.

He noted that in response to the Covid-19 pandemic, the Reserve Bank has focused on resolution of stress among borrowers, and facilitating credit flow to the economy, while ensuring financial stability.

In view of the Covid-19 related economic shock, it was announced in April 2020 that scheduled commercial banks (SCBs) and cooperative banks shall not make any dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions, which shall be reassessed based on financial results of banks for the quarter ending September 30, 2020.

The RBI has also decided to formulate guidelines on dividend distribution by NBFCs keeping in view the increasing significance of NBFCs in the financial system and their interlinkages with different segments.

Unlike banks, currently there are no guidelines in place with regard to distribution of dividend by NBFCs.

It has now been decided that Different categories of NBFCs would be allowed to declare dividend as per a matrix of parameters, subject to a set of generic conditions. A draft circular in this regard will be issued shortly for public comments shortly by RBI.