Extreme risk aversion by banks will be self-defeating, according Reserve Bank of India Governor Shaktikanta Das.
In his keynote address at a banking conclave organised by a media house, Das cautioned that such an approach is not desirable and will affect their income.
The RBI’s latest annual report has underscored that Indian banking has to be liberated from the risk aversion that is impeding flow of credit to productive sectors of the economy and undermining the role of banks as the principal financial intermediaries in the economy.
In the report, the central bank warned that regulatory dispensations that the pandemic has necessitated in terms of the moratorium on loan instalments, deferment of interest payments and restructuring may also have implications for the financial health of banks, unless they are closely monitored and judiciously used.
‘Not exhausted policy ammunition’
Das underscored that the RBI has not exhausted its policy options, including rate cut and other measures.
This observation comes in the backdrop of the cut in policy repo rate by a cumulative 250 basis points since February 2019 and a host of measures to ensure that the economy has sufficient liquidity.
Referring to the MPC keeping the policy repo unchanged at its last meeting, the Governor said the committee chose to keep its powder dry.