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Reserve Bank of India Governor Shaktikanta Das reiterated the need for banks to remain vigilant and take proactive measures to strengthen their resilience and lending capacity by raising capital and making provisions proactively.
He made the aforementioned observation in meetings with the Managing Director & Chief Executive Officers of public and private sector banks on December 22 and 23, respectively, through video conference.
In a speech in July, Das had observed that building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.
The RBI had (on June 19 and July 1, 2020) advised all banks, non-deposit taking NBFCs (non-banking finance companies with an asset size of ₹5,000 crore) and all deposit-taking NBFCs to assess the impact of Covid-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy for the financial year 2020-21.
Based on the outcome of such stress testing, banks and NBFCs were advised to work out possible mitigating measures including capital planning, capital raising, and contingency liquidity planning, among others, Das then said.
The idea is to ensure continued credit supply to different sectors of the economy and maintain financial stability, he added.
Among the issues discussed in the meetings include assessment of the current economic situation and outlook; monetary policy transmission and liquidity situation; credit flows to different sectors of the economy including stressed sectors and MSMEs (micro, small and medium enterprises).
The other issues that were discussed were: progress in the implementation of Resolution Framework for Covid-related stressed assets; progress in making the identified districts in States/UTs 100 per cent digitally enabled; strengthening and enhancing the capacity and efficiency of the IT infrastructure and IT systems in banks; and focussed attention on improving grievance redress mechanisms in banks.
In his opening remarks, the Governor touched upon the current economic situation and emphasised the importance of the banking sector in supporting the ongoing revival in economic activities.
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