Reserve Bank of India Governor Shaktikanta Das on Saturday said that financial stability and revival of economic growth is central bank’s top most priority.
To have a better view of the financial health of banks, NBFCs it is a must that they conduct stress tests to assess the impact on the balance sheet, asset quality, liquidity, profitability and capital adequacy and non-performing assets caused due to the pandemic. Based on the results each financial institutes should take initiatives to mitigate the risks, said Das.
The governor made the statement while he was delivering a keynote at the 7th SBI Banking & Economic Conclave.
“We have, on June 19 and again on July 1, advised all banks and NBFCs to do COVID stress tests and analyse the impact on balance sheet, asset quality, liquidity, profitability and capital adequacy for FY21 and FY22. Based on the outcome of such stress testing, banks and NBFCs have been advised to work out possible mitigating measures including capital planning, capital raising, and contingency liquidity planning, among others,” he added.
The governor further advised banks, both private and public, to raise capital. He said, “raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.”
Das’ comments come at a time when the impact of the pandemic remains uncertain on bank balance sheets. Banks have already delayed their reporting of any stress on their balance sheets due to the ongoing moratorium on loans, which is scheduled to end on August 31.
As per reports, several banks have already begun raising capitals while others have announced to do so.
Pointing at the rising NPAs, Das said that there is nothing surprising in it. However, he said, it is important to address these risks and take necessary corrective measures.
“Coronavirus pandemic will result in high NPAs and capital erosion of banks and other financial institutions. It is obvious. It happens after every calamity. But the primary focus now should be to identify the vulnerability and take necessary corrective measures,” said Das
The governor added that “a recapitalisation plan for PSBs and private banks has, therefore, become necessary.”