RBI forbids banks to make dividend payment for financial year ended March 31 2020

RBI forbids banks to make dividend payment for the financial year ended March 31 2020.

In 2005, the Reserve Bank of India ( RBI ) reviewed the policy approach with regard to payment of dividends by bank  shifting the regulatory focus from the ‘quantum of dividend’ to the ‘dividend payout ratio.

The banks were granted general permission to declare dividends, subject to compliance with the guidelines of eligibility and quantum of pay out ratio.

In April, 2020 in view of the heightened uncertainty caused by COVID-19 and desirability of banks conserving capital to retain their capacity to support the economy and absorb losses, 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. 

However, in view of the ongoing stress and heightened uncertainty on account of COVID-19, the RBI has stressed that it is imperative that banks continue to conserve capital to support the economy and absorb losses.

Accordingly, in order to further strengthen the banks’ balance sheets, while at the same time support lending to the real economy, the RBI has directed banks shall not make any dividend payment on equity shares from the profits pertaining to the financial year ended March 31, 2020.

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