NEW DELHI: The Covid-19-induced regulatory relief such as the moratorium on loan instalments, deferment of interest payments, and restructuring may have implications for the financial health of banks, unless they are closely monitored and judiciously used, the RBI said in its annual report.
Pegging the income loss due to 68 days of lockdown at nearly Rs 3 lakh crore, the banking regulator added that public sector banks will need capital support to avoid a banking crisis. “Although gross and net non-performing asset ratios had come down in March 2020 along with receding slippage ratios, the economic fallout of the pandemic is likely to test this resilience,” the report said.
Citing the macro stress tests reported in the July 2020 Financial Stability Report, it said that non-performing assets may surge 1.5 times above their March 2020 levels under the baseline scenario, and by 1.7 times in a very severely stressed scenario.
“The system level CRAR can drop to 13.3 per cent in March 2021 from its March 2020 level under the baseline scenario and to 11.8 per cent under the very severe stress scenario,” the report warned. In the backdrop of likely asset quality pressures, it added that recapitalisation of PSBs was key and that banks need to shed their risk aversion to ensure adequate flow of credit to productive sectors.
Lenders will also need to shore up their capital position to deal with a possible spike in bad loans post Covid 19, the central bank said.
RBI balance sheet expands by 30%
The Reserve Bank’s balance sheet, reflective of activities carried out by it, has increased by 30.02 per cent in the year ended June 30, 2020
The balance sheet increased by Rs 12,31,888 crore to Rs 53,34,793 crore. The increase on the asset side was due to rising domestic and foreign investments, by 18.40 and 27.28 per cent respectively