The Reserve Bank of India (RBI) has cautioned commercial banks to be wary of the risk of increased ‘slippage’ on restructured advances during the COVID-19 pandemic, especially as the economy recovers from the impact of the public health crisis .
“The banking sector has seen an improvement in financial parameters despite the COVID-19 pandemic,” RBI said in its annual report for 2021-2022 released on Friday. “However, there is a need to be mindful of the credit behavior of restructured advances and the potential for slippages arising from sectors that were relatively more exposed to the pandemic,” the central bank warned.
“With the end of the support measures, some restructured accounts may face solvency concerns, which will make the impact on the balance sheets of banks clear in the coming quarters. Prudence guarantees proactive identification of any non-viable accounts to enable timely resolution,” it added.
Going forward, as the economy recovers and credit demand picks up, banks will need to focus on supporting credit growth while remaining alert to emerging risks, RBI said.
“Care should be taken to ensure that fresh slippages are arrested, and balance sheets of banks are strengthened to avoid tension build-up in future,” it emphasized.
Highlighting that the setting up of National Asset Reconstruction Company Limited (NARCL) will help in resolving stressed assets associated with large value, heritage assets, and which will help in reviving investor interest in primary and secondary markets for stressed ones. will serve as a time-efficient mechanism. The assets, RBI said going forward, continued commitment, professionalism and transparency in operations will help make the exercise cost- and time-effective.
“The setting up of the National Bank for Financing Infrastructure and Development (NABFID) is expected to relieve the burden of long-term financing from banks. NABFID can also play an active role in the development of the bond and derivatives markets needed to finance infrastructure.
Stating that NBFCs and urban co-operative banks (UCBs) have to beware of vulnerabilities wherever they exist, he said they should ensure strong asset-liability management in their balance sheets, apart from improving the quality of their credit portfolios. needed.
“Given the significant portion of funding absorbed by NBFCs at the system level, it is imperative to continue to pay close attention to their financial health from the point of view of financial stability,” RBI said. “A number of measures are expected to be taken for banks and NBFCs during 2022-23 to further strengthen the regulatory and supervisory framework,” it said.
On a broader level, while 2021-22 brought many challenges, the recovery was on despite the odds.
It said, “By removing supply side bottlenecks, calibrating monetary policy to bring inflation within target while supporting growth, and specifically targeting fiscal policy support to boost capital expenditure.” The future path of development will be conditioned.”