RBI Governor meets bank chiefs to discuss credit growth, asset quality

RBI Governor Shaktikanta Das.

The Reserve Bank of India (RBI) Governor Shaktikanta Das on May 17 and May 18 met heads of state-run and private banks to take a stock of credit growth and asset quality in the banking system in the wake of recent geopolitical developments, the central bank said.

“In his introductory remarks, the Governor noted the key role played by the banks in supporting the economy throughout the pandemic,” the central bank said in a release on Wednesday.

Das further stated that the banking sector has remained resilient and has continued to improve despite facing various headwinds.

He also advised banks to remain watchful of the recent geopolitical developments and take mitigating measures proactively including raising capital for ensuring that the potential impact on their balance sheets is minimised.

Governor Das also urged banks to pay specific attention to further improving their grievance redress systems and continue to provide the necessary support to economic recovery.

At the meeting, which took place at the RBI headquarters in Mumbai, Das discussed issues including rate transmission to borrowers, according to bankers.

Indian banks’ credit disbursals eased in the fortnight ending April 22, the latest available data from the central bank shows. Credit grew by 10.07 percent on-year, against 10.10 in the previous prior two-week period, the data shows.

In terms of asset quality, most banks have reported an improvement in non-performing asset ratios (NPAs). In an interview on May 13, State Bank of India Chairman Dinesh Khara said the bank would be able to maintain slippages below 2 percent of the total book.

The meeting came almost a fortnight after the Monetary Policy Committee (MPC) surprised everyone on May 4 by hiking the repo rate by 40 basis points to 4.40 percent citing inflationary pressures. One basis point is one-hundredth of a percentage point.

The RBI's off-cycle rate move was seen as an effort by the central bank to fight soaring inflation, which has stubbornly stayed above its comfort zone in the last few months, raising concerns among policymakers.

In April, the retail inflation surged to 7.79 percent, the highest since May 2014. At 7.79 percent, the Consumer Price Index (CPI) inflation print for April was 84 basis points higher than the March number of 6.95 percent, data released on May 12 by the ministry of statistics and programme implementation showed.

By sharply hiking the repo rate, the RBI aims to control demand and thus cool down inflation. Banks, on the other hand, have chosen to pass the rate hike to borrowers by increasing the marginal cost of the fund-based lending rate.