MUMBAI: The Reserve Bank on Friday said the banks would need to support growth while being watchful of the credit behaviour of entities whose loans were restructured during the pandemic period to arrest slippages.
Banks had extended moratorium on repayment of loans and restructured advances to businesses to help them combat the impact of the COVID pandemic and subsequent lockdowns to check the spread of the virus.
In its annual report released on Friday, the RBI said the banking sector has witnessed improved financial parameters despite the COVID-19 pandemic. "However, there is a need to be watchful of the credit behaviour of the restructured advances and possibility of increased slippages arising from sectors that were relatively more exposed to the pandemic," it said.
The report noted that with the unwinding of support measures, some of the restructured accounts might face solvency concerns, and the impact on banks' balance sheets becoming clearer in the upcoming quarters. Prudence warrants proactive recognition of any non-viable accounts to activate timely resolution, it added.
"Going forward, as the economy recovers and credit demand rises, banks will need to focus on supporting credit growth while being vigilant of the evolving risks. "Care needs to be taken to ensure that fresh slippages are arrested, and banks' balance sheets are strengthened to avoid future build-up of stress," said the Reserve Bank's Annual Report for the Year 2021-22.
It further said NBFCs and urban cooperative banks (UCBs) will have to be mindful of frailties, wherever they exist, in their balance sheets and ensure robust asset-liability management, apart from improving the quality of their credit portfolios.
The central bank also said that in order to further strengthen the regulatory and supervisory framework, several measures are expected to be put in place for banks and NBFCs during the current financial year. On the overall economic situation, the Reserve Bank said fiscal 2020-21 brought many challenges, but a recovery is underway in spite of headwinds.
The future path of growth will be conditioned by addressing supply-side bottlenecks, calibrating monetary policy to bring inflation within the target while supporting growth and targeted fiscal policy support to aggregate demand, it added.