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Stressed assets, Covid recast: RBI, bank chiefs meet

RBI Governor Shaktikanta Das advised the banks to remain watchful of the evolving situation and continue taking measures proactively for maintaining their business continuity, sharpening business strategies and raising adequate capital for strengthening balance sheets.

Written by George Mathew
Mumbai | Updated: April 13, 2021 5:52:45 am
RBI Governor Shaktikanta Das

Even as the second wave of the Covid pandemic hit the country and states started imposing stringent curbs including lockdown, Reserve Bank Governor and other top officials met the chiefs of commercial banks on Monday to take stock of the situation in the financial sector, especially in maintaining business continuity and tackling stressed assets.

RBI Governor Shaktikanta Das advised the banks to remain watchful of the evolving situation and continue taking measures proactively for maintaining their business continuity, sharpening business strategies and raising adequate capital for strengthening balance sheets. He also touched upon the importance of credit flows in sustaining the nascent economic recovery. With fears mounting over a rise in bad loans, credit growth had remained sluggish and came down to 5.6 per in FY21 as against 6.1 per cent in the previous year.

Bankers are apprehensive about a spike in bad loans in the wake of the second wave. “There’s uncertainty about stressed loans if lockdown is imposed in states like Maharashtra. Bad loans will rise further,” said the chief of a nationalised bank.

In January 2021, the Financial Stability Report (FSR) of the RBI warned that the banking sector NPAs (non-performing assets) are expected to shoot up to 13.5 per cent of advances by September 2021, from 7.5 per cent in September 2020, under the baseline scenario. The FSR has warned that if the macroeconomic environment worsens into a severe stress scenario, the NPA ratio may escalate to 14.8 per cent.

RBI officials and bank chiefs also discussed the progress in the implementation of Covid Resolution Framework, outlook on stresseD assets, capital augmentation and liquidity scenario and monetary transmission. The issue of credit flows to different sectors including to stressed sectors, MSMEs and the retail segment also came up for discussion. The Governor highlighted the recent policy measures taken by the RBI to further support the ongoing recovery while preserving financial stability. He also emphasised the need for banks to maintain close vigil on the payments and other IT systems operated by banks and fortifying those for enhanced efficiency and resilience so as to offer seamless and uninterrupted customer service.

The RBI slashed policy rate – Repo rate – by 115 basis points to 4 per cent since February 7, 2020 to boost growth and investments that came under pressure after Covid pandemic hit the country last year. The RBI had announced moratorium on loan repayment came out with measures to tackle stressed loans last year.

However, the decline in Repo rate failed to boost the bank credit which showed a lower growth rate of 5.6 per cent – a rise of just Rs 5.80 lakh crore — to Rs 109.51 lakh crore in FY21 as corporate investments remained sluggish. GDP which contracted by 23.9 per cent in the June quarter of FY21, is expected to grow by 10.5 per cent in the ongoing fiscal.

On Monday, Uday Kotak, President of CII and vice-chairman and MD of Kotak Mahindra Bank, said, “At this juncture, CII calls for quick action to be taken by the government on ‘whatever it takes’ to ramp up production, supply and distribution of vaccines. Strict following and enforcement of safety and hygiene protocols by all sections of society is absolutely critical.”

Opposing lockdown, CII said lockdown is not a solution in the present times and requested for maintaining stringent Covid-related protocols for public places and workplaces. At the same time, the vaccination drive must be accelerated, Kotak said. “Factories and shop-floors must be kept open for economic reasons so that production and supply chains are not disturbed. ‘Work from home’ must be prescribed or followed wherever possible. In offices where this is not possible, it needs to be ensured that only one-third attendance of employees is permitted,” he said.

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