Mumbai: As banks in India are staring at a possible surge in bad loans due to the Covid-19-induced disruptions, the Governor of Reserve Bank of India (RBI) Shaktikanta Das has assured that the Central Bank is keeping a close tab on the financial condition of banks and will take steps to preserve the stability of country's financial system.
In the foreword to the Financial Stability Report (FSR) released on Monday, the Governor also underscored the importance of the banking system as the economy is showing signs of recovery.
“Banks will be called to meet the funding requirements of the economy as it traces a revival from the pandemic. Consequently, maintaining the health of the banking sector remains a policy priority and preservation of the stability of the financial system is an overarching goal,” said the Governor.
This assurance from the Governor is of importance in the backdrop of a probable spike in nonperforming assets (NPAs) of banks in the coming months.
As per the FSR, gross NPAs (GNPAs) of scheduled commercial banks may rise to 13.5 per cent by September 2021, from 7.5 per cent in September 2020 under the baseline scenario.
If the macroeconomic environment worsens into a severe stress scenario, the GNPA ratio may escalate to 14.8 per cent, the FSR added.
The report further mentioned that NPAs of public sector banks will be higher than that of the private banks.
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The public sector banks' (PSBs) may see a GNPA ratio of 16.2 per cent by September 2021 in comparison to 9.7 per cent in last September, said the report.
Whereas, the GNPA ratio of private sector banks (PVBs) and foreign banks (FBs) may increase from 4.6 per cent and 2.5 per cent to 7.9 per cent and 5.4 per cent, respectively, over the same period.
"These GNPA projections are indicative of the possible economic impairment latent in banks' portfolios, with implications for capital planning," observed the report.
More investment needed to build IT infrastructure
Lauding the efforts of banks for making use of digital platforms during the pandemic, the Governor urged the industry to increase investments to build robust IT infrastructure.
“Information technology platforms and digital payment systems have provided considerable support for business continuity and smooth functioning during the pandemic,” Das said in the forward to the report.
“More investment is required by all stakeholders for building robust IT platforms and technologies for operational purposes as well as for fortifying public confidence in digital banking, especially when the financial landscape is rapidly embracing new technologies,” he added.
