Reserve Bank of India governor Shaktikanta Das on Monday said banks must be prepared to face the challenges in the wake of the coronavirus outbreak, as slowing global growth will add to the stress of the Indian corporate balance sheet.
Das was speaking at the 13th edition of Mint’s Annual Banking Conclave.
The governor quoted agencies, such as the International Monetary Fund (IMF), to highlight the fact that global growth was expected to slowdown further because of the coronavirus contagion. IMF has already reduced the global growth forecast from 2.9% in 2019 to 3.3% in 2020. Banks should, therefore, be prepared to face these challenges effectively, he added.
“The IMF is analysing the impact of the coronavirus on global growth, which is on a slowdown mode. If global growth slows down further, it will impact the health of banks because slowing growth creates more stress in the corporate sector. In this environment, banks should focus on prudent lending."
According to Das, slowing domestic credit growth is yet another challenge and banks should, therefore, focus on credit offtake, which has dropped to 7% in recent months. He also said banks should focus on improving their operational efficiency.
“There cannot be any compromise on prudent lending or the quality of appraisal. Quality of appraisal will flow out of good governance and a good internal control system."
With the aim of boosting credit growth, the RBI, in its recent monetary policy in February, announced exemption of cash-reserve ratio for five years for incremental credit disbursed to the automobile and residential housing sectors, as well as micro, small and medium enterprises.
The central bank also introduced long-term repo operations of one- and three-year tenures to enhance liquidity, credit growth, and transmission of policy rates to customers.
Das touched upon the different steps that RBI is taking to improve supervision of banks.
The central bank is looking at sharper and forward-looking off-site surveillance framework as an aid to on-site supervision.
“We are also following a calibrated supervisory approach to bring in required modularity and scalability, to better focus on risky practices and institutions and to deploy an appropriate range of tools and technology to achieve our supervisory objectives," he said.
“A sup-tech initiative is being implemented as a part of the integrated compliance management and tracking system. This will facilitate transparent and efficient monitoring of all pending compliances of supervised entities through a web-based interface, automate the inspection planning process and cyber incident reporting, and ensure seamless collection of data," said Das.
“Thematic studies will be undertaken across banks and other financial sector entities. New elements of supervision will also be introduced from time to time," the governor added.