Though the asset high quality has improved from the pre-pandemic ranges, lenders ought to verify whether or not that is on account of higher fundamentals or because of the regulatory assist prolonged to take care of the affect of the pandemic, he famous.
“We count on banks and different monetary establishments to proactively undertake stress testing of their mortgage books, subjecting them to varied ranges of stress, together with excessive situations, to estimate the loss absorption limits wherever accessible at their disposal, and take measures to enhance the identical wherever essential,” Rao stated at an occasion organised by IMC Chamber of Commerce and Trade.
He stated whereas the central financial institution has tried to fight the affect of the pandemic on the monetary system, (however) the duty is just half performed.
“We have now to make sure that the monetary system escapes unscathed as we exit from the pandemic-driven regulatory forbearances,” Rao stated.
Rao stated the pandemic noticed the monetary sector having fun with beneficial momentum with a rise in liquidity, the stream of credit score and regular spending on reduction programmes.
“It’s getting more and more debated within the international 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 must be exhibited by banks to determine whether or not the present ranges of asset high quality being exhibited is on account of enchancment in fundamentals of enterprise on account of deleveraging and effectivity features or on account of assist prolonged by authorities by means of the measures,” the deputy governor famous.
He stated the RBI will quickly concern a dialogue paper on the introduction of a framework on anticipated credit score loss fashions for banks.
