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Provisioning, capital buffer for banks, NBFCs more important than ever: Shaktikanta Das

Reserve Bank Governor Shaktikanta Das on Friday called upon banks to further strengthen capital buffers and build provisions to combat any possible stress that might emanate from the second wave of the pandemic. “Building adequate provisioning and capital buffers, together with sound corporate governance in financial entities, have become much more important than ever before, […]

By: ENS Economic Bureau |
June 5, 2021 3:02:30 am
Shaktikanta Das

Reserve Bank Governor Shaktikanta Das on Friday called upon banks to further strengthen capital buffers and build provisions to combat any possible stress that might emanate from the second wave of the pandemic.

“Building adequate provisioning and capital buffers, together with sound corporate governance in financial entities, have become much more important than ever before, more so in the context of banks and NBFCs being at the forefront of our efforts to mitigate the economic impact of Covid-19,” Das said in his address.

In financial year 2020-21, both private and public sector banks had raised capital from the market, but Das said more needs to be done. “That is the signal/message we are giving to the banks and NBFCs because there could be some stress arising out of the second (Covid-19) wave,” said Das at a media conference referring to the call for raising capital.

“Having said that I would like to mention that overall capital positions of the banks are at stable levels,” he added. As RBI’s annual report released last week pointed out, the capital adequacy ratio (CAR) of banks rose to 15.9 per cent in December 2020 from 14.8 per cent in March 2020.

When asked about the NPA position for banks, the RBI Governor said “our expectation is that whatever projections we had given in our last financial stability report, it will be within that.”

In its January financial stability report, the RBI had projected gross NPAs for banks at 13.5 per cent of their advances by September 2021 in its baseline scenario. In its annual report last week, the Reserve Bank had said that the asset quality of banks would need “close monitoring.”

Separately, RBI Deputy Governor MK Jain said the central bank has received representations from the industry on new audit rules. Announced in April, the new norms tightened regulations for the appointment, eligibility and tenure of auditors.

The RBI has maintained that the objective of these regulations is to ensure independence of auditors. “We have received certain representation from various stakeholders seeking clarification which are being examined and shortly we will come out with those clarifications,” said Jain.

“But the larger objective of these guidelines are basically to put in place ownership neutral regulation, ensuring independence of auditors, avoiding conflict of interest and improving quality of audits. And we should also see these measures as part of RBI’s efforts to strengthen the assurance functions in regulated entities.”

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