Be watchful of Covid situation, push credit flows: Shaktikanta Das to banks

Takes stock of the progress in implementing Covid resolution framework

Reserve Bank of India (RBI) Governor Shaktikanta Das met the heads of public and private sector banks on Monday and cautioned them to remain watchful of the evolving Covid-19 situation in the country. 

The governor has asked banks to take proactive measures and shore up capital to strengthen their balance sheets. 

Das in his remarks said the recent policy measures had been taken to further support the ongoing recovery while preserving financial stability. He touched upon the importance of credit flows in sustaining the nascent economic recovery. 

In the recently concluded monetary policy meeting, the six-member committee voted unanimously for a status quo on the benchmark rate “for as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward”.

Among other things, the governor, along with Deputy Governors MK Jain and M Rajeshwar Rao, discussed the liquidity scenario, monetary transmission, credit flow to the stressed sectors such as MSME and retail, and capital augmentation by banks. 

Das also held discussions with the bankers on the outlook for stressed assets. This comes in the wake of the Supreme Court judgment which vacated its earlier interim order on standstill on the classification of assets. Analysts and rating agencies have estimated that the bad assets of banks will go up by as much as 1 per cent. 

The gross non-performing assets (NPAs) of the banking sector is expected to rise to 9.6-9.7 per cent by March 31, and may even go up to 9.9-10.2 per cent by the end of next fiscal year, rating agency ICRA has estimated, as the impact of relief measures wanes off and stress is recognised after the apex court’s verdict vacating its earlier judgment of standstill on asset classification. 

The headline pro forma gross NPAs and net NPAs reported by banks in Q3FY21 do not reflect the underlying stress on the asset quality of banks as the quantum of loans in the overdue categories have increased post the moratorium period and this will lead to a rise in non-performing assets of the banks.