Covid pandemic could result in high NPAs and capital erosion, says RBI Governor

Mumbai, July 11

The Indian economy has started showing signs of normalcy with ease in lockdown restrictions across the country, RBI Governor Shaktikanta Das said on Saturday.

However, he cautioned, the economic impact of the pandemic due to the lockdown and anticipated post-lockdown compression in economic growth might result in higher non-performing assets and capital erosion of the banks. A recapitalisation plan for public and private sector banks had, therefore, become absolutely necessary, he said.

He said that post containment of Covid-19 a very careful trajectory had to be followed in orderly unwinding of counter-cyclical regulatory measures. 

The financial sector should return to normal functioning without relying on regulatory relaxation as the new norm, he added.

"Indian economy has started showing signs of going back to normalcy after easing of restrictions," Das said at the 7th SBI Banking and Economics Conclave.

While the multi-pronged approach of the Reserve Bank had provided a cushion from the immediate impact of the pandemic on banks, the medium-term outlook is uncertain and depended on the Covid-19 curve, he said.

"Policy action in medium-term would require a careful assessment of how the crisis unfolds," he said, adding that building buffers and raising capital would be crucial not only to ensuring credit flows but also to building resilience in the financial system.

The country's banking and financial system is capable of rising to the occasion in meeting this challenge, he asserted.

In these challenging times, banks had to improve their governance and sharpen their risk management, he said. 

Banks would also have to raise capital in an anticipatory basis instead of waiting for a situation to arise, Das noted.  PTI

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