The second wave of the pandemic took a “serious toll” on India, but economic activity that has deteriorated since late May has started to recover, Reserve Bank Governor Shaktikanta Das said on Thursday. First, Das flagged rising data breaches and cyber attacks as a risk facing the economy, among others, such as tightening global commodity prices. “The recovery that started in the second half of 2020-21 was impacted in April-May 2021, but the wave of infections was ending as fast as it did. Economic activity has resumed in late May and early June,” Das wrote in his proposal for the bi-annual Financial Stability Report prepared by the RBI.
The report said the gross non-performing assets of banks remained stable at 7.5 per cent in March 2021 – the same level as six months ago – but is expected to go up to 9.8 per cent in March 2022 as per the baseline outlook. Das said that the balance sheet and performance of financial institutions in India have seen a much smaller decline than before, but is quick to add that a clearer picture will emerge as the effects of regulatory relief work their way in full swing. Huh. He also said that the capital and liquidity buffers in financial institutions are “reasonably resilient” to face any future shocks.
He said the financial system is ahead to aid recovery, but the priority is to maintain and preserve financial stability. He added that domestic financial markets are also expected to see strong signs of an end to the pandemic, an increasing pace and breadth of the vaccination campaign and a renewed sense of the economy to reopen lost ground as it unlocks. “…While the recovery is underway, new risks emerge on the horizon and these include still-emerging and improving conditions, vulnerable to shocks and future waves of the pandemic; international commodity prices and inflationary pressures; Global spillover amid high uncertainty; and increasing incidents of data breaches and cyber attacks,” he said.
The Governor emphasized that continued policy support by financial institutions, along with capital and liquidity buffers, is critical to address the risks. Stating that the financial system can take the lead in creating conditions for the economy to recover and flourish, he said strong capital position, good governance and efficiency in financial intermediation would be the touchstones of this effort.
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