Despite the development in asset high quality, monetary establishments, together with banks, must proactively undertake stress testing of mortgage books to look at their loss absorption limits and take steps to enhance them wherever required, RBI Deputy Governor M Rajeshwar Rao mentioned on Thursday.
The gross non-performing property (GNPAs) and web NPAs of banks improved to five.97 per cent and 1.7 per cent as of March 31, 2022, from 9.23 per cent and three.66 per cent as of September 2019, respectively, he mentioned.
Although the asset high quality has improved from the pre-pandemic ranges, lenders ought to confirm whether or not that is on account of higher fundamentals or as a result of regulatory help prolonged to take care of the impression of the pandemic, he famous.
“We expect banks and other financial institutions to proactively undertake stress testing of their loan books, subjecting them to various levels of stress, including extreme scenarios, to estimate the loss absorption limits wherever available at their disposal, and take measures to augment the same wherever necessary,” Rao mentioned at an occasion organised by IMC Chamber of Commerce and Industry.
He mentioned whereas the central financial institution has tried to fight the impression of the pandemic on the monetary system, (however) the duty is barely half performed.
“We have to ensure that the financial system escapes unscathed as we exit from the pandemic-driven regulatory forbearances,” Rao mentioned.
Rao mentioned the pandemic noticed the monetary sector having fun with beneficial momentum with a rise in liquidity, the move of credit score and regular spending on aid programmes.
“It is getting more and more debated within the world fora as as to whether the pandemic-induced measures have led to a build-up of leverage and debt overhang within the non-financial sector.
“Prudence has to be exhibited by banks to ascertain whether the current levels of asset quality being exhibited is on account of improvement in fundamentals of business on account of deleveraging and efficiency gains or on account of support extended by authorities through the measures,” the deputy governor famous.
He mentioned the RBI will quickly concern a dialogue paper on the introduction of a framework on anticipated credit score loss fashions for banks.
Source: www.financialexpress.com”