The RBI also expressed concern over rolling back policy support given to the bank’s to deal with the Covid-19 pandemic in the last 8 months. “In 2020-21, as policy support is rolled back, the impact of the COVID-19 pandemic may dent the health of the banks and non-banks,” the regulator said as part of its report on trends and progress of banking.
The RBI also said that the turnaround of the banking system depended on the pace of economy returning to growth path. “Improvement in the health of the banking sector henceforth hinges around the pace and shape of economic recovery,” it said. “The challenge is to rewind various relaxations in a timely manner, reining in loan impairment and adequate capital infusion for a healthy banking sector.”
The RBI also said that at the end of August 2020, around 40% of outstanding loans of the financial system including banks and non-bank lenders had availed moratorium. Moratorium was higher among MSMEs customers, data showed. 78% of such customers availed moratorium. It’s preliminary estimates also suggested that potential recapitalisation requirements for meeting regulatory purposes as well as for growth capital may be to the extent of 150 basis points of the common equity tier 1 ratio for the banking system.
On asset quality front, the RBI said that data on gross non-performing assets of banks was yet to reflect the stress, obscured under the asset quality standstill with attendant financial stability implications. An analysis of published quarterly results of a sample of banks indicates that their GNPA ratios would have been higher in the range of 0.10% to 0.66% at the end of September 2020. “The COVID-19 provisioning and ploughing back of dividends would help shield their balance sheets from emanating stress to a certain extent,” the regulator noted.