The central bank said, however, that the removal of the Supreme Court’s standstill on recognition of bad loans will require banks’ asset quality to be monitored in coming quarters and their preparedness for higher provisioning.
Banks have so far not seen any marked deterioration in asset quality due to the COVID-19 pandemic with December quarter data showing slight sequential improvement in asset quality notwithstanding the standstill that was in place due to a Supreme Court order.
However, the onset of the second wave has further triggered concerns over the asset quality of the banking sector. The country’s largest private sector lender
earlier this week told analysts that delinquencies in retail loans may rise going ahead due to the second wave.
“Stress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario,” the central bank said in its annual report for 2020-21.
The RBI said that the envisaged bad bank alongwith measures aimed at developing market-based mechanism for credit risk transfer and development of secondary loan market may help in reducing stressed assets on the balance sheets of banks.
RBI further said that it will take steps to strengthen the onsite assessment of oversight and assurance functions of banks including risk and compliance culture. “The efficiency and efficacy of supervisory processes will be further enhanced with the adoption of innovative and scalable supervisory technology,” the central bank said.
