RBI Monetary Policy: Governor Shaktikanta Das says banks can retain FY20 profit, need not give dividends

File image of the Reserve Bank of India's office

Reserve Bank of India (RBI) Governor Shaktikanta Das on December 4 reiterated that commercial and co-operative banks can retain FY20 profit and not make any dividend payments. The objective was to help banks conserve cash to overcome the impact of COVID.

While RBI had already asked banks in April not to make any dividends for the fiscal year ending March 2020, it had said it will review its stand based on financial positions of the banks for the September quarter.

“In view of the ongoing stress and the heightened uncertainty on account of COVID-19, it is imperative that banks continue to conserve capital to support the economy and absorb losses, if any,” RBI said in a statement on developmental and regulatory policies.

“In order to further strengthen the banks' balance sheets while at the same time supporting lending to the real economy, it has been decided, on a review, that SCBs (scheduled commercial banks) and cooperative banks shall not make any dividend pay-out from the profits pertaining to financial year 2019-20,” it added.

Das also said the central bank saw India’s Gross Domestic Product (GDP) contracting by 7.5 percent in FY21 amid the economic disruptions. However, he also noted that were nascent signs of recovery seen in second half of FY21.

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The Monetary Policy Committee (MPC) on December 4 voted unanimously to keep the policy rate unchanged at 4 percent. The committee, citing high inflation constraints, also said it would maintain accommodative stance as long as necessary. Reverse repo rate was kept unchanged at 3.35 percent.

India's real GDP for the September quarter contracted 7.5 percent year-on-year, on the back of the steep contraction in manufacturing, construction and services, according to data released by the National Statistical Office (NSO) on November 27 showed. This means, with two consecutive quarters of negative GDP growth, the Indian economy is in technical recession. India was in a recession last in 1979 when the real GDP fell 5.2 percent.