RBI bars banks from paying out dividends

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The Reserve Bank of India (RBI) has asked banks to conserve capital and not make any dividend payments for financial year 2020.

RBI Governor Shaktikanta Das said in his monetary policy statement on Friday 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 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.

Reserve Bank Of India

The growing significance of NBFCs and their interlinkages with different segments in the financial system has made it imperative to enhance the resilience of the sector, Das said. Therefore, it has been decided to put in place transparent criteria as per a matrix of parameters for declaration of dividends by different categories of NBFCs. A draft circular containing the proposed criteria and parameters will be released soon for public comments.

Further, the current regulatory regime for the NBFC sector, built on the principle of proportionality, warrants a review. It is felt that a scale-based regulatory approach linked to the systemic risk contribution of NBFCs could be the way forward. As part of the stakeholder consultation process, a discussion paper on this subject will be issued before January 15, 2021 for public comments.

In April, RBI had announced 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.

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