The survival of the banking industry depends on a turnaround in the macroeconomic conditions.
Reserve Bank of India (RBI). (File Photo: IANS)
The Reserve Bank of India (RBI) has red-flagged banks on retail lending over slowing economic activity and negative consumer sentiment.
The federal bank has called for granular lending strategy to offset risk concentration in its yearly publication on trends and progress of banking in India. The RBI’s “Trend and Progress of Banking in India 2018-19” report stated that the event of demand for credit slowing down from the corporate sector, the retail segment saw a surge in lending.
“The slowdown in consumption and overall economic growth may affect the demand for and the quality of retail loans,” the RBI report said on Tuesday.
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It further noted, “the bad loan overhang remains in the banking segment even as the resolutions under the IBC framework have seen an improvement. Issues like resolution of stressed assets, governance, fraud needs to be addressed.”
The survival of the banking industry depends on a turnaround in the macroeconomic conditions. Due to defaults and rating cuts, formal lending to NBFCs declined, the central bank said while offering ways to address the stress in the NBFC sector.
“In order to strengthen the liquidity framework for NBFCs, a liquidity coverage ratio (LCR) has been introduced for all deposit-taking NBFCs (NBFCs-D) and non-deposit taking NBFCs (NBFCs-ND) with an asset size of Rs 5,000 crore,” it said.
On recapitalisation of PSBs, it said the deferment of the implementation of the last tranche of the Capital Conservation Buffer (CCB) till March 31, 2020 has offered some breathing space to these banks. Their capacity to sustain credit growth in consonance with the financing requirements of the economy will, however, warrant that capital is maintained well above the regulatory minimum, providing these banks confidence to assume risk and to lend.
(With input from agencies)
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