Reserve Bank of India governor Shaktikanta Das on Wednesday warned banks against becoming overly risk-averse and suggested that they reframe their strategy to support sunrise sectors as well as those that have the potential to bounce back from the Covid-19 crisis.
Banks need to look at opportunities in the rural sector as well as startups, renewables and logistics, among others, Das said in his keynote address at an event organized by Business Standard newspaper.
“Remaining overly risk-averse may seem to be a measure of self-immunisation, but it will be self-defeating as it would affect the bottom lines adversely. Risk propensity should be in alignment with the individual bank’s measured risk-appetite,” Das said.
Though economic activity has restarted after one of the world’s strictest lockdowns, banks have been cautious when it comes to lending. According to RBI data, bank credit growth moderated further to 5.5% during the fortnight ended July 31 compared with 5.8% in the preceding two weeks. An analysis of sectoral data shows that lending to medium-sized industries has contracted by 9.4% while that to micro and small sectors contracted by 7.6% in the current financial year to June 19.
Das assured that RBI will not look at unwinding the countercyclical measures to stimulate demand once the pandemic is under control and will craft a cautious exit plan.
“Post containment of Covid-19, a very careful trajectory needs to be followed for the orderly unwinding of the various countercyclical measures taken by the RBI and the financial sector should return to normal functioning without relying on the regulatory relaxations and other measures as the new norm,” he said.He said banks need to proactively respond to the challenges posed by the pandemic, including erosion of capital. RBI, in its financial stability report, said capital adequacy ratio for lenders could fall to 11.8% by March 2021 down from 14.6% in March 2020.
On policy options, Das said, “We have not exhausted our policy options, whether it relates to rate cuts or any other aspects of central banking. We have not exhausted our instruments or ammunition.”
With inputs from PTI.