Mumbai: The Reserve Bank on Tuesday said the banking sector needs to strengthen corporate governance and risk management practices to deal with the uncertainties arising out of the coronavirus pandemic. With rapid technological advancements in the digital payments landscape and the emergence of new entrants in the fintech ecosystem, banks need to prioritize upgrading their IT infrastructure and improving customer services, along with strengthening their cyber security.
RBI in its report on ‘Banking Trends and Progress 2020-21 in India’ said, “Banks will need to strengthen their corporate governance practices and risk management strategies to build resilience in an increasingly dynamic and uncertain economic environment.” ” Further said though credit offtake by banks remained sluggish during 2020-21 in an environment of risk aversion and sluggish demand conditions, a pickup has started in Q2 of 2021-22, with the economy coming out of the shadow of the second wave of COVID-19 is leaving. -19. “Going forward, the revival in bank balance sheets hinges around overall economic growth which is dependent on progress on the pandemic front,” it said. However, banks will need to further strengthen their capital position to absorb potential slippages as well as maintain credit flow. In short, the report said, “The Indian financial sector stands at a crossroads: while the immediate impact of the fallout of COVID-19 will dominate the short-term, the larger challenges related to climate change and technological innovations will need to be carefully prepared. Strategy”. The Reserve Bank emphasized that it will endeavor to ensure a safe, sound and competitive financial system through its regulatory and supervisory initiatives.
During 2020-21, the consolidated balance sheets of scheduled commercial banks (SCBs) expanded in size, despite the pandemic and the resultant contraction in economic activity. Credit growth is showing early signs of recovery so far in 2021-22. The report said deposits grew by 10.1 per cent at the end of September 2021, compared to 11 per cent a year ago. “The gross non-performing assets (GNPA) ratio of SCBs declined from 8.2 per cent at the end of March 2020 to 7.3 per cent at the end of March 2021 and 6.9 per cent at the end of September 2021,” the report said.
On recapitalization requirements post-COVID-19, RBI said that all public and private sector banks maintained a capital conservation buffer (CCB) of more than 2.5 per cent as of September 30, 2021, depending on the capital position. “Going forward, banks will require higher capital cushion to meet the stress being experienced by borrowers as well as challenges to meet the potential credit requirements of the economy.” The apex bank also emphasized that there is a need for timely infusion of capital by banks. Further, the banking sector will need to create adequate buffers and remain alert to emerging risks as the economy recovers from the impact of the COVID-19 pandemic .