The Reserve Bank of India (RBI) on December 29 said banks’ financials may likely come under pressure as COVID-19- related relaxations are withdrawn slowly and asset quality pressure becomes evident.
With the moratorium coming to an end, the deadline for restructuring proposals is fast approaching and with the possible lifting of the asset quality standstill, banks’ financials are likely to be impacted in terms of asset quality and future income, the RBI said in its Trend and Progress report.
In anticipation of higher loan delinquencies, banks have announced ambitious plans to shore up their capital bases to adhere to regulatory requirements and to be lending-ready as and when credit demand bounces back, the report said.
“Going forward, banks will have to adapt and adjust to the rapidly evolving economic landscape due to these challenges and also the entry of niche players and emerging financial technologies,” the RBI said.
In the wake of COVID-19, the RBI announced a six-month moratorium on all term loans for banks and followed it up with a one-time loan restructuring plan. The government put all fresh bankruptcy cases on hold till March, 2021, while the Supreme Court in an interim order asked banks not to tag any loan as NPA that were on standard as on August 31.
Although, banks’ financial conditions improved on lower slippages and higher capital buffers and provisions, subdued economic conditions amplified risk aversion and dragged down credit off-take, the RBI report said.
During FY21 so far, the safe haven appeal of banks led to a sharp accretion to deposits, the report said.
“With credit demand remaining anaemic, as the deleterious effects of COVID-19 played out on the economy, banks preferred to park funds in safer G-Secs to partially offset the impact of low lending,” the report said.
Banks have been parking an average of Rs 6 lakh crore in the RBI’s reverse repo window almost every day due to falling loan demand and excess liquidity in the banking system.