Financial institutions, Banks, need to proactively undertake stress testing of loan books: RBI Deputy Governor M Rajeshwar Rao
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RBI Deputy Governor M Rajeshwar Rao has said despite the improvement in asset quality, financial institutions, including banks, need to proactively undertake stress testing of loan books to examine their loss absorption limits and take steps to improve them wherever required. Rao stated the gross non-performing assets (GNPAs) and net NPAs of banks improved to 5.97 per cent and 1.7 per cent as of March 31, 2022, from 9.23 per cent and 3.66 per cent as of September 2019, respectively.
He noted although the asset quality has improved from the pre-pandemic levels, lenders should ascertain whether this is on account of better fundamentals or due to the regulatory support extended to deal with the impact of the pandemic. He said while the central bank has attempted to combat the impact of the pandemic on the financial system, (but) the task is only half done.
He said ‘We have to ensure that the financial system escapes unscathed as we exit from the pandemic-driven regulatory forbearances.’ He also added the pandemic saw the financial sector enjoying favourable momentum with an increase in liquidity, the flow of credit and normal spending on relief programmes.
