Identify cos that are not viable: RBI governor to banks

MUMBAI: RBI governor Shaktikanta Das on Tuesday asked lenders to proactively identify loans to firms that have turned non-viable but not yet recognised as a non-performing asset (NPA) due to the special dispensation during Covid. The governor also asked banks to review the usability of capital for absorbing losses during a crisis. Pointing out that numerous high-frequency indicators are showing that economic recovery is taking hold, Das said that there have been several resolution frameworks announced in the wake of the pandemic. “As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” said Das. Speaking at an economic conclave organised by the State Bank of India, Das noted that banks have weathered the Covid shock better than expected and, according to early trends, their bad loans and capital position has improved in September 2021 from their levels in June 2021. He said that the profitability metrics of banks were highest in several years. However, the improved parameters partly reflect regulatory relief provided to banks during Covid as well as fiscal guarantees and financial support given by the government, he said. “Certain concerns have re-emerged from the crisis which warrant our attention. Most importantly, we are faced with the question of capital and provisioning buffers of banks, their adequacy and resultant usability during a crisis,” said Das. He urged banks to focus and further improve their capital management processes to envisage the capacity for loss absorption as an ongoing responsibility of the lending institutions. In his speech, the governor also cautioned banks on the “technological invasion” that they face. “A word of caution is in order: Globally, the ‘phygital’ revolution has played out into several collaborative models between banks, NBFCs and fintech players such as incubation, capital investment, co-creation, distribution and integration… it must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised,” Das said.

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