Mumbai: The Reserve Bank of India (RBI) on Friday barred banks from paying dividends for the fiscal year ended March 2020 so that they conserve capital in view of the economic shock caused by the Covid-19 pandemic.In his address, which included other policy measures, RBI governor Shaktikanta Das said the ban on dividend payment will help banks conserve capital.It is imperative that banks conserve capital to retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty, Das said.
It has, therefore, been decided that in view of the Covid-19-related economic shock, scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions.This restriction will be reviewed on the basis of the financial position of banks for the quarter ending September 30, 2020, Das said.Analysts said the RBI move was a prudential and temporary one.It will help banks conserve capital, said Rohan Mandora, analyst at Equirus Securities.
Anyway, private sector banks were the only ones in position to pay dividend.
Banks also do not offer a high dividend yield compared to other sectors like FMGC, IT or pharma; so in that sense, it will not impact investors much.In the fiscal ended March 2019, private sector banks paid a total of ?7,087 crore in dividend, led by HDFC Banks ?4,085 crore payment to shareholders.Public sector banks did not pay any dividend last fiscal.On Friday, bank stocks rose after the RBI announced additional liquidity measures that would push credit growth.The 12-share Nifty Bank Index gained 6.92% on Friday, led by Axis Bank (up 13.9%), Bandhan Bank (up 11%) and Federal Bank (up 9.95%).Restrictions in dividend payments will help in conserving capital but not to a large extent, said Mahantesh Sabarad, head retail research at SBI Cap Securities.This is also a temporary move.
The real problems in the sector are to do with asset quality and liquidity due to Covid-19.
Banks are also desperately seeking to revive credit demand and use the excess liquidity lying with them.Analysts do not expect any rerating on the bank stocks due to this move by RBI.