Banks and non-banking financial companies (NBFCs) have to be watchful and improve their risk management measures as the unwinding of easy policies could have spillover effects, Shaktikanta Das, RBI Governor, said, reported Economic Times.
“We have to be, however, watchful of the impact of the pandemic on the banking and NBFC sectors when the effects of regulatory reliefs and resolutions fully work their way through,” Das said in the bi-monthly monetary policy statement.
Das emphasised that banks need to strengthen governance standards and build capital buffers as the financial system makes its way through the pandemic, reported Economic Times.
“Banks and other financial entities would be well advised to further strengthen their corporate governance and risk management strategies to build resilience in an increasingly dynamic and uncertain economic environment,” the governor said. “They also need to continue the process of capital augmentation and building up of appropriate buffers.”
Rate-sensitive stocks were trading mixed post the RBI announcement. The Nifty Bank and Nifty Fin Services surged a percent each as RBI did not raise rates with the Nifty Private Bank index up 1 percent. However, Nifty PSU Bank index ended flat.
Mr Das also added that the regulator has been strengthening the regulatory and supervisory framework for both banking and non-bank financial sectors to identify, assess and importantly to deal with vulnerabilities, reported ET.
As per the latest December quarter earnings, all banks are relatively stronger with higher capital adequacy, higher provisioning cover, reduced bad loans and higher profitability in comparison to the previous years.
“Despite the pandemic induced bouts of volatility, the Indian financial system has remained resilient and is now in a better position to meet the credit demands as recovery takes hold and investment activity picks up,” the governor said.