Banks recapitalisation: Raise capital on anticipatory basis amid emerging vulnerabilities: RBI Governor to banks | #riskmanagement | #security | #ceo | #businesssecurity | #

NEW DELHI: RBI Governor Shaktikanta Das on Saturday said that meeting the minimum capital requirement is necessary, but not sufficient for financial stability.

It is crucial to raise capital and build buffers to ensure credit flow and resilience, Das said. He asked banks to improve governance and sharpen risk management skills. The RBI, he said, is trying to sync Indian banks’ corporate governance with global norms.

Speaking at the SBI Banking and Economics Conclave, Das said that Covid-19 may lead to deterioration in non-performing assets (NPAs) and that banks must raise capital on an anticipatory basis, ahead of the actual need.

The Governor said that the recapitalisation of PSUs and private banks was absolutely necessary.

“Restoring confidence and reviving growth is the need of the hour,” he said.

Das said that while the NBFC sector looks resilient, the redemption pressure on NBFCs and mutual funds needs a close monitoring. The increase in share of bank lending to NBFCs and the continuing crunch in the market-based financing faced by NBFCs and HFCs also need to be watched carefully, he said.

“The economic impact of the pandemic due to the lockdown and the anticipated post-lockdown compression in the economic growth may result in higher NPA and capital erosion of the banks,” he said.

Das said that the RBI has undertaken a series of measures to mitigate the impact of Covid-19, but banks’ minimum capital norms may not be enough to absorb losses.

“From February 2019 onwards, on a cumulative basis, we had cut the repo rate by 250 basis points till the onset of COVID-19. That was done mainly to tackle the slowdown in growth which was visible at that time and we had elaborately touched upon its in our MPC Resolutions,” Das said.

Meanwhile, he warned that financial markets must not treat the recent unconventional steps as the new normal.

Post-Covid, he said, India would need careful unwinding of regulatory measures. So far, there is uncertainty over when the supply chains will be restored, he added.

The Governor said the RBI was looking at a workable solution for PMC Bank. The RBI has asked banks and NBFCs to conduct stress tests due to Covid-19, while suggesting that an early warning system — with a stress alert system — has been implemented by the RBI.

The RBI policy action for medium-term will require a careful assessment of how the crisis unfolds, Das said.

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