Indian banking system well-placed to support growth: RBI governor

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MUMBAI: Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday that India’s banking sector as a whole has emerged stronger from the unprecedented challenges of the recent Covid-19 pandemic and the subsequent geopolitics.

Today, the Indian banking system is well-placed to support India’s growth story in the years ahead, Das said. All key indicators of scheduled commercial banks (SCBs) — capital adequacy, asset quality, and profitability — have shown improvement in the last four years, noted the RBI Governor, addressing the Mint BFSI summit in Mumbai.

“The credit growth has now become broad-based and backed by the strong fundamentals of the financial institutions. The financial indicators of non-banking financial companies are also in line with that of the banking system as per the latest available data”, Das asserted.

Not very long ago, the Indian banking sector was beset with a host of issues, including high levels of non-performing assets (NPAs), while the returns on assets and equity were in a negative zone. Eleven banks were under Prompt Corrective Action (PCA) as of the end of June 2018, Das said.

“Even as we were coping with the stress in the financial sector, the Covid-19 pandemic at the beginning of the year 2020 came as a shocker, which led to major disruptions across all sectors”, he contended.

Against that backdrop, during the last five years, the central bank took a series of initiatives on the regulatory and supervisory fronts, while banks themselves, to their credit, responded to the challenges by strengthening their internal defence mechanisms.

To provide immediate debt service relief to borrowers whose income-generating ability was impaired by the lockdowns, a moratorium on repayment of loans was provided to all eligible borrowers, initially for a period of three months, which was subsequently extended by another three months, taking the total to six months from March 2020 to August 2020.

Das said that as a result of these concerted efforts, there has been a gradual and consistent turnaround in the banking system, despite the multiple headwinds emanating from COVID-19, geo-political conflicts and sharp monetary policy tightening across the world.

In the US, notably, one of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which had been struggling, collapsed on March 10, 2023, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks.

Further, on questions often raised as to how this turnaround in the banking sector took place, Das responded by saying that it was the result of all the “good work” of various stakeholders in the system. “Our ultimate objective is the mutual coexistence of price stability, sustained growth and financial stability that works best for the Indian economy”.

In conclusion, he said the remarkable turnaround in the Indian banking system has been a cornerstone of India’s success story in recent years. (ANI)

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