Is coronavirus really affecting banks?
Reserve Bank of India governor Shaktikanta Das speaking at 13th edition of Mint’s Annual Banking Conclave advised the banks to be prepared for the challenges arising due to the Coronavirus outbreak, as a slowing global growth would add to the stress on the Indian corporate balance sheet and thereby on banks. He said that the banks should focus on credit off-take as the slowing domestic credit growth is a big challenge in itself. He mentioned the names of various agencies like the International Monetary Fund (IMF) to emphasize the expected slowdown of the global economy due to the virus outbreak. The IMF has already reduced their Global Growth Rate from 2.9 in 2019 to 3.3 in 2020 and he warned the banks to prepare for the incoming challenges with this.
Here’s what RBI Governor said about Coronavirus affecting banks:
“The IMF is analyzing 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.” he said.
According to Das, banks should focus on credit off-take which has already dropped by 7% in the recent months while the domestic credit growth slowdown is yet another challenge that the banks will have to face.
For boosting the credit growth, in the recent monetary policy of February, the RBI announced the exemption of cash reserve ratio for five years for incremental credit disbursed to the automobile and residential housing sectors as well as various enterprises. Long-term repo operations of one- and three-year tenures have also been introduced by the RBI to enhance liquidity, credit growth, and transmission of policy rates to customers.
He briefly talked about the different steps that the RBI is taking for increased supervision of the banks.
The governor added while closing the speech that:
“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.”
“Thematic studies will be undertaken across banks and other financial sector entities. New elements of supervision will also be introduced from time to time.”