In an effort to strengthen the financial system of the country’s financial institutions, the Reserve Bank of India (RBI) on Friday decided to freeze dividend payments by banks for the financial year 2019-20. Addressing a televised speech, RBI Governor Shaktikanta Das said, “It is imperative that banks conserve capital to retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty. 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.”

The announcement to halt dividend payments by the lenders came along with other measures announced by the central bank that included encouraging the banks to lend more to the public by cutting the reverse repo rate to 3.75% from 4%. Das highlighted that the RBI absorbed Rs 6.9 lakh crore from the banks on April 15 alone, adding that there is enough liquidity available in the system. However, in his almost 40-minute long briefing, Das also asked banks to make a higher 10% provision for all accounts that are under a standstill under the loan moratorium.

Das also announced that the accounts that are provided with the moratorium, will see an asset classification standstill. “It has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, that is, there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020,” RBI Governor said.

The dividend payment halt, announced by the central bank will be reviewed during the quarter ending September 30. Das added that on the inflation front, CPI based inflation has declined in the month March and it is expected to ease further. “These early developments suggest inflation is on the decline. In period ahead inflation could recede even further. This would make policy space available,” he said. In his address RBI governor Das highlighted that in the coming quarters, India would be growing at 1.9% which will be the fastest among G-20 nations.