What changed
RBI issued a circular on December 4, 2020, prohibiting banks from declaring dividends on equity shares from profits for the financial year ended March 31, 2020. This extends an earlier April 2020 directive that had already restricted dividend payouts.
What it means for you
Banks must retain all FY20 profits to strengthen balance sheets amid pandemic uncertainty. This bolsters capital buffers for lending to the real economy and absorbing potential credit losses. Shareholders will not receive dividends for that period, impacting investor returns.
What you must do
- Ensure no dividend is declared or paid on equity shares from FY20 profits.
- Review capital adequacy and provisioning plans to align with retained earnings.
- Communicate the dividend ban to shareholders and board members clearly.
- Update dividend policies and disclosures in annual reports accordingly.
Who it affects
All commercial banks (public and private sector), All cooperative banks (urban and rural), Bank shareholders and investors, Bank boards and management teams
Does this ban apply to dividends from profits of later financial years?
No, the circular specifically restricts dividends only from profits pertaining to the financial year ended March 31, 2020. Future dividends will be governed by subsequent RBI instructions.
Are preference share dividends also banned under this circular?
The circular explicitly mentions 'dividend payment on equity shares'. It does not address preference shares, but banks should consult RBI guidelines for any related restrictions.