Banks need to closely monitor asset high quality, prepare for higher provisioning: RBI
Reserve Bank of India (RBI) on Thursday requested banks to closely monitor their dangerous loans and prepare themselves for higher provisioning within the wake of second COVID wave and the Supreme Court order lifting the ban on classification of non-performing property. The waiver of compound curiosity on all mortgage accounts which opted for moratorium throughout March-August 2020 might put stress on banks’ monetary well being.
The apex financial institution, nonetheless, expressed confidence that banks are higher positioned than earlier than in managing stress of their steadiness sheets in view of higher capital buffers, enchancment in recoveries and a return to profitability.
“Stress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario. Bank-wise as well as system-wide supervisory stress testing provide clues for a forward-looking identification of vulnerable areas,” RBI mentioned in its annual report 2020-21 launched on Thursday.
The annual report additionally emphasised the need for banks to hold a tab on the Non-Performing Assets (NPAs) and accordingly earmark capital for provisioning.
“With the lifting of the interim stay on asset classification standstill by the Hon’ble Supreme Court on March 23, 2021, banks’ asset quality will need to be closely monitored in coming quarters, with preparedness for higher provisioning,” it mentioned.
The waiving of curiosity on curiosity charged on loans throughout moratorium interval (March 1, 2020 to August 31, 2020) may additionally impinge on lending establishments’ funds.
In March this yr, the Supreme Court directed banks to waive compound curiosity on loans above Rs 2 crore for debtors who had availed moratorium as loans under this quantity bought blanket curiosity on curiosity waiver in November final yr.
Compound curiosity help scheme for mortgage moratorium price the federal government Rs 5,500 crore throughout 2020-21, and the scheme lined all debtors, together with the immediate one who didn’t avail moratorium.
In March final yr, RBI introduced a mortgage moratorium on cost of installments of time period loans falling due between March 1 and May 31, 2020, due to the pandemic and later, the identical was prolonged to August 31.
Considering the potential stress due to COVID, banks have been suggested about deferment of phase-in of the final tranche of Capital Conservation Buffer (CCB) of 0.625 per cent from September 30, 2020 to April 1, 2021. This was additional deferred by six months to October 1, 2021.
CCB isn’t relevant to small finance banks, cost banks, regional rural banks and native space banks.