RBI annual report | Banks need to be wary of stress in restructured book, rising slippages

The Reserve Bank of India has cautioned about the likelihood of rising stress from restructured loan books of banks, saying there is a need to watch this chunk of loans.

“The banking sector has witnessed improved financial parameters despite the COVID-19 pandemic,” the RBI said in its 2021-22 annual report released on May 27. “There is, however, a need to be watchful of the credit behaviour of the restructured advances and possibility of increased slippages arising from sectors that were relatively more exposed to the pandemic.”

With the unwinding of support measures, some of the restructured accounts could face solvency concerns, impacting banks’ balance sheets, the central bank said.

Indian banks' gross non-performing assets (GNPAs) stood at 6.9 percent at the end of September compared to 7.3 percent in March 2021, RBI data shows.

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Banks will have to proactively recognise any non-viable accounts to activate timely resolution, the banking regulator said  As the economy recovers and credit demand rises, banks will need to focus on supporting credit growth while being vigilant of the evolving risks, it added.

Lenders also need to ensure that fresh slippages are arrested and balance sheets are strengthened to avoid future build-up of stress, the central bank said in the annual report.

The setting up of the National Asset Reconstruction Company Ltd (NARCL) will likely serve as a “time-efficient mechanism” for reviving investor interest in primary and secondary markets for stressed assets, the RBI said.

Continued commitment, professionalism and transparency in operation will help in making the exercise cost- and time-effective.

The plan for asset transfer in the NARCL has been delayed due to regulatory concerns. The bad bank has already missed its March 31, 2022 deadline for acquiring stressed assets. Banks are looking to transfer stressed assets worth Rs 2 lakh crore in the first tranche.

An annual feature, the RBI report includes a review well as the prospects of the Indian economy. It also details the working of the RBI during the year, its vision and agenda for the next year along with its the annual accounts.