Banks Told Not to Pay Dividend, Conserve Capital

RBI Governor Shaktikanta Das has announced that in order to conserve capital and economic shock cooperative and commercial banks will not pay dividends until further notice. Read to know about the impact of this action on the economy.

According to the recent news, RBI asked the banks for not paying a dividend for the previous year ended in March 2020. It is all to conserve the capital and economic shock that a bank would face due to the relevant pandemic COVID-19. As per the statement of governor of RBI, Shaktikanta Das, that not paying dividends will help out the banks to retain their capital. 

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What Mr. Das Concluded for Dividend Pay-outs of Fiscal Year Completion?

RBI being the imperative head bank of all others, always retains some money so that they can help in economic support for the mere future issues. Thus conserving capital for this year would help them to overcome problems coming as declared by Mr. Das. Thus all the cooperative and commercial banks will not make any pay-out until the new instruction comes. Mr. Das even added that these restrictions would continue until the end of September this year. However, this is very temporary, and if the governor found good economic health might change his statement. But still, this move is the best way to achieve the mission of conserving capital. 

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Effect on Private Banks

However, private banks are in a condition for making the pay-out, and thus the statement of Mr. Das might not affect much. Private banks have paid for fiscal ending in mostly crores to their stakeholders. However, Mahantesh Sabarad, who is head retail of research at SBI securities, said that not paying dividend may not affect on a large scale as we can see present economic conditions. But this temporary move can affect much. According to the analysts, there will be no much rerating with such a step on the banks. However, Das even explained that for the first 90 days, the process would move under this rule. 

Also, the chief investment officer, Rajeev Thakkar, said that private banks do not yield much dividend funds and the measures by RBI are very genuine. However, the conditions of banks will be reviewed in September after a quarter of the new year after 31 March 2020. As per the reports, HDFC paid a lot of 4085 crores out of 7087 crores in total paid by private banks. 

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However, people are waiting for the right news from Mr. Das to bring conditions back to normal as soon as he can. 

According to the experts, the decision will take India in the right direction as it is not very clear how much time it will take to completely eliminate the virus and let India come out of this pandemic situation. Not paying dividends would help banks to get rid of future economic pains. The spread of this pandemic has affected India the most in every case, primarily raised economic disturbances. Also, still, none is aware when will this condition come back to normal. 

According to the current analysis, the rate of COVID-19  positive people has decreased and doubled in 6 days. However, before this, the rate of doubling was in 3 days. It is a good change notice, but there are a total of 19 states affected by the positive cases. People believe that soon the situation of a pandemic might come to an end. 

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