RBI has said banks need to tighten their risk management practices to deal with challenges posed by Covid
Mumbai:
The Reserve Bank of India (RBI) believes that the banking industry in the country needs to tighten corporate governance and risk management practices to deal with the challenges posed by the Coronavirus pandemic.
The RBI said in its report “Banking Trends and Progress in India 2020-21”, banks will need to strengthen their corporate governance practices and risk management strategies to build their ability to recovery in an increasingly dynamic and uncertain economic environment.
Amid the rapid technological advancements in the digital payments landscape and the emergence of new entrants in the FinTech ecosystem, banks will also be required to prioritize upgrading their IT infrastructure and improve customer service, along with enhancing their cybersecurity.
It also added that while banks’ credit balances remained bearish in a risk-averse environment and constrained demand conditions in 2020-21, upward momentum started in Q2/ 2021-22, with the economy emerging from the shadows of the second wave of the Coronavirus pandemic.
Going forward, the resurgence in banks’ balance sheets hinges on overall economic growth, which depends on progress on the pandemic front, it said.
However, banks will need to further strengthen their capital positions to absorb potential slippage and maintain credit flows.
In sum, the report said, “the Indian financial sector is at a crossroads: while the immediate impact of the COVID-19 outbreak will dominate the larger, short-term challenges associated with transformation climate and technological innovation will need to be carefully crafted.
The central bank has also ensured a safe, sound and competitive financial system through its regulatory and supervisory initiatives.
During 2020-21, the consolidated balance sheets of commercial banks (SCBs) are expected to have expanded in size, despite the pandemic and contraction in economic activity.
In the period of 2021-22 so far, credit growth has shown signs of recovery. The report said deposits grew 10.1% at the end of September 2021 from 11% a year ago.
“SCB’s total bad assets (GNPA) ratio fell from 8.2% at the end of March 2020 to 7.3% at the end of March 2021 and further to 6.9% at the end of September 2021. “, the report said.
Regarding post-COVID-19 refinancing requirements, RBI said that based on capital positions as of September 30, 2021, all public and private sector banks maintain capital preservation buffers (CCBs). ) above 2.5%.
Going forward, however, banks will need a higher capital buffer to cope with the challenges posed by ongoing stress from borrowers and to meet the potential credit requirements of the economy. economy,” it said.
Peak Bank also emphasized that coordinated strategies for timely funding should be implemented by banks.
