NEW DELHI: RBI governor Shaktikanta Das on Thursday assured financial markets that the central bank would not be in a hurry to unwind the measures taken to cushion the Covid-19 disruption. He hinted that RBI would continue its support to the financial markets for some time.
“We are not signalling unwinding of Covid-19 steps now. Once Covid-19 is contained, we will unwind the steps taken in an orderly manner. Unwinding of Covid-19 measures must be calibrated and cautious. We will have a non-disruptive exit plan for these steps,” he said.
That statement came hours before US Fed Chair Jerome Powell is to deliver an address at the Jackson Hole symposium, where he is widely expected to drop some hints about how the US central bank is visualising the rollback of the massive Covid-19 relief package announced over the past five months.
Das, who was speaking at an event via video conferencing, stressed on more reforms in the banking sector, so that the sector is able to manage the risks well. He also said banks should work better to tackle frauds.
The total cases of frauds (involving Rs 1 lakh and above) shot up by 28 per cent in volume terms and 159 per cent in value terms during 2019-20 despite RBI tightening the supervision and vigilance. In its annual report, RBI said while there were 6,799 frauds involving Rs 71,543 crore as of March 2019, the number jumped to 8,707 involving a whopping Rs 1,85,644 crore by March 2020.
“The inability to manage the incidence of frauds is an area of concern for the banking sector. There is considerable room for improvement for banks to tackle fraud cases. It is fundamental to reforming the culture of governance and risk management,” Das said .
He said banks’ risk manager must be able to smell such vulnerabilities. Das said he believes pandemic-related shocks will put huge pressure on bank balance sheets and to say that banks will face stress going forward is stating the obvious. “Risk propensity should be aligned with banks’ risk appetite,” he said.
RBI, in an earlier report, had projected up to 620 bps jump in NPAs for banks by the end of this financial year.
Das said that does not mean banks should be averse to lending, as “remaining overly risk averse can be self-defeating,” he said.
This statement came amid reports that banks have not been lending enough. Reuters in a report said banks have shunned millions of farmers, as they have turned cautious due to rising bad loans. This is forcing them to turn to illegal moneylenders, who are charging increasingly exorbitant interest rates, according to over a dozen farmers and bankers Reuters spoke to.
“The banking sector needs a complete relook at the business strategy. They need to look at unexplored rural sectors and startups. Banks need also to look at the sunrise sectors,” Das pointed out.
He lauded the government plans to further consolidate the PSU banking sector. “PSU bank consolidation is a step in the right direction. Large, more efficient banks can compete in a better way. While size is essential, banking efficiency is even more essential,” he said.