Reserve Bank of India Governor Shaktikanta Das said on Thursday that the country’s banking system “continues to be sound and stable” amid the coronavirus crisis. “We have not exhausted our ammunition, whether on rate cuts or other policy actions,” said Das at a webinar organised by Business Standard.
Das said that though the economic impact was “hard to measure”, being “overly risk-averse” would be self-defeating for banks.
The central bank’s governor said the moratorium on loans was a temporary solution. “Measures taken by the RBI are intended to deal with the specific situation of Covid-19 and cannot be, obviously permanent,” said Das. Considering the economic impact of the lockdown imposed to fight the coronavirus crisis, the RBI had on March 27 said that banks would be allowed to grant a moratorium of three months on payment of all instalments due between March 1 and May 31. On May 22, it said that banks can extend the moratorium until August 31.
Das said the RBI will withdraw its pandemic-related dispensations in a calibrated manner, adding that a resolution framework would give durable relief to borrowers. “We are monitoring the situation and we will have a very cautious exit plan,” he added. “The RBI is taking a long-term view on resolutions and measures.”
Das said banks had to improve their risk management and governance frameworks and not simply be averse to risks. “Extreme risk aversion can be self-defeating, banks will not be able to win their bread,” Das said. He added that the banks’ “risk frameworks should be able to smell vulnerabilities”.