RBI governor Shaktikanta Das said that it will be critical to ensure that further slippages are contained
There is a need for a continued vigil on the asset quality of banks, said Reserve Bank of India (RBI) Governor Shaktikanta Das. Speaking at the 9th Vibrant Gujarat Global Summit 2019, Das said there is also a need to keep a watch on the resolution of stressed assets with a focus on the implementation of the new resolution framework.
"It will remain critical to ensure that further slippages are contained," said Das.
RBI’s recent initiatives are aimed at ensuring better and timely recognition of stressed assets, sufficient provisioning and efficient resolution process, he said.
"Recent supervisory data suggests that these efforts are bearing some results and incipient signs of improvement in asset quality of banks are emerging," said the governor.
After reaching a peak of 11.5 percent in March 2018, the gross non-performing asset ratio improved to 10.8 percent in September 2018. As per the current assessment of RBI, Das said the ratio may further improve to 10.3 percent by March 2019.
Another area where policy action is required, according to the RBI governor, is corporate governance in banks with a focus on transparency and accountability.
On Insolvency and Bankruptcy Code (IBC) framework
Das said the new resolution framework with IBC as its lynchpin and RBI’s regulatory framework as its facilitator is a game changer. The shift of power in favour of creditors in the IBC framework will facilitate speedier and impartial resolution process and help in improving the credit repayment culture, he added.
The RBI governor also said data available until January 3, 2019, showed the resolution processes have been approved in 66 cases, involving around Rs 80,000 crore as resolution value to creditors.
On non-banking financial companies (NBFCs)
Das said the debt default of a systemically important NBFC highlighted the vulnerability and need for strengthening regulatory vigil on the sector in general and on asset liability management (ALM) framework in particular.
He added that the RBI intends to strengthen the ALM framework for NBFCs. In order to allow additional access to funding for the NBFC sector in the wake of the recent crisis, RBI has already eased the norms for NBFCs to securitise their loan books.
In addition, he said that banks have been allowed to provide partial credit enhancement to bonds issued by the systemically important non-deposit taking NBFCs and housing finance companies."This measure will enhance credit rating of bonds and enable the companies to access funds from the bond market on improved terms. We are keen to foster a well regulated, well-functioning and vibrant NBFC sector," said Das.
Although headline inflation has moderated significantly in recent years, Das said that its major components, inflation in food, fuel, and inflation (excluding food and fuel) are exhibiting wide divergences this year.
While food inflation has turned negative since October 2018 and fuel inflation has been highly volatile, the RBI governor added that inflation excluding food and fuel remains sticky at close to 6 percent.
"Such wide divergences and large volatilities in inflation across major groups pose challenges for inflation assessment. Balancing the objectives of inflation and growth under a flexible inflation targeting framework would warrant careful analysis of every new data," added Das.
The RBI governor said the central bank will take the necessary steps to maintain financial stability and facilitate enabling conditions for sustainable and robust growth.