RBI BANS BANKS, COOPERATIVE FROM PAYING DIVIDENDS

The Reserve Bank of Friday debarred all commercial and cooperative banks from paying dividends to shareholders and promoter groups as the regulator fears the COVID-19  drive economic shock would continue longer and may put the health of the financial system of risk.The decision will hit the already supposed finance of the Centre given the massive shocks to the economic from the coronavirus- driven lockdown and the alredy falling growth rates which has brought down demand for loans and thus the profitability of banks which were anyways grappling with high bad  loans.

"It is imperative that banks conserve capital to retain their capacity to support the economy and absorb losses in an enviornmental of heightened uncertanity." "In this regard in view of the COVID-19 -related economic shocks, commercial banks and cooperative banks shall not make any further dividend payouts from the profit pertaining to FY2020 until futher instructions,"RBI Governor Shakikanta Das said while announcing a slew of liquidity enchancing measures to prop up the ecomomy." "This relation shall be reviewed on the basis of the financial position of banks as of the September 2020,he added.

Avnish Jain of Canara Robeco AMC said" stopping dividend payments from banks would be impact government's non-tax revenue , futher worsening the already stressed fiscal situation." While most private sector banks pay only very low dividends, state-run banks have to make hefty payouts to the government annually.In fact. since 2018 the government has made it mandatory for all its profit making companies to pay at least 20 percent of their net income as dividend. Budget 2020  has shifted the divident distribution tax from the hands of the company to the shareholders/investor, thus appearing the promoters.The COVID-19  pandemic has wreaked havoc on economies across the world and has taken the lives of over 1.45 lakh globally ,including around 440 in India.