NEW DELHI: At a time of uncertainty over the economic fallout of COVID-19, which can lead to companies defaulting on their loans to financial institutions, the Reserve Bank of India has asked all scheduled commercial banks and co-operative banks to refrain from making dividend payouts for 2019-20 (Apr-Mar).
"It is imperative that banks conserve capital to retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty," RBI Governor Shaktikanta Das said.
"It has, therefore, been decided that...scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended Mar 31, 2020 until further instructions," Das said and that this restriction will be reviewed based on the financial health of banks at the end of September.
While some large banks are wellplaced to deal with any sudden surge in bad loans that will push up provision costs, as they have capital and provision buffers, many of the smaller banks may not be in a good position to do so.
With RBI asking banks not to make dividend payments at the moment, many of these banks will be able to conserve internal accruals as capital or reserves, till the full impact of COVID-19 on asset quality is clear.