RBI Governor Shaktikanta Das today said banks and NBFCs have to improve governance, sharpen skill management and raise capital on a proactive basis to deal with the impact of coronavirus in the financial system.
While speaking at the SBI Conclave, the RBI Governor in his keynote address said that 'building buffers and raising capital' will be very crucial not only to ensure credit flow but also to build resilience in the financial system.
RBI had earlier advised banks and NBFCs to undertake COVID stress tests to analyse the balance sheet impact in areas like liquidity, asset quality, profitability and capital adequacy for the years 2020-21 and 2021-22. Many banks have already done the stress testing. They have been advised to work out possible mitigating measures including capital planning, capital raising and contingency liquidity planning. In fact, many private banks have either raised or are planning to raise the capital. Public sector banks, however, are waiting for the government to recapitalise them.
Governor Das also said the RBI is focused on supporting growth, preserving stability in the financial system and the soundness of banks.
The current banks performance figure released by the RBI Governor shows that the asset quality has improved marginally, though the numbers are provisional. The gross NPAs and net NPAs of the entire banking system are at 8.3 per cent and 2.2 per cent in 2019-20. The gross and net NPAs figure were 9.1 and 3.7 per net respectively in the previous year 2018-19. The NPA provisioning coverage ratio has also improved from 60.5 per cent in 2018-19 to 65.4 per cent in 2019-20.
NBFCs' gross NPA and net NPAs were at 6.4 per cent and 3.2 per cent, respectively in 2019-20. There was a marginal deterioration in NBFC numbers because of the disruption post IL&FS.
But these figures might change drastically in 2020-21 because of the huge loan book under the six-months moratorium and the likely spurt in NPAs post the second quarter of the current year. Businesses are also operating at a very low capacity. The very fact that the GDP is going to shrink or plunge into the negative territory in 2020-21 shows that the stress in the system will increase manifold.
Das also hinted that the central bank will follow a very careful trajectory for the orderly unwinding of counter cyclical regulatory measures post containment of COVID-19. It may be pointed out that the RBI has provided many relaxations like lower cash reserve ratio, lesser liquidity ratios and also reduction of risk weights for helping the banking system in these difficult times.
RBI Governor said that the measures taken by the central bank appeared to have worked so far. "It gives us satisfaction and inspires us to take more action to support the financial system," he said. In a pre coronavirus period, the RBI had cut repo rate by 135 basis points to tackle the slowdown in the economic growth. Post COVID, the RBI was quick to cut the rates by 115 basis points , which took the cumulative repo rate cut by 250 basis points. The current repo rate is at 4 per cent.
The RBI had also infused Rs 9.57 lakh crore liquidity in the system to fight any liquidity shortages post coronavirus. Das said the liquidity amount is equivalent to 4.7 per cent of the country's nominal GDP.