Covid-19 can result in balance sheet impairments, maintaining banking sector's health policy priority, says RBI Governor

Reserve Bank of India (RBI) governor Shaktikanta Das on Monday released the Financial Stability Report 2021 which highlighted the state of the banking sector in the country.

In his foreword to the bi-annual reports, Das said that the coronavirus disease (Covid-19) pandemic threatens to result in balance sheet impairments and capital shortfalls at banks.

"The Covid-19 pandemic can result in balance sheet impairments, capital shortfalls, as regulatory reliefs are rolled back," the RBI governor said, adding that the financial stability is threatened by the stretch valuations of the financial assets.

Das said that easy liquidity and financing conditions have shored up the financial parametres of banks, but made it clear that the "available accounting numbers obscure a true recognition of stress".

He asked the banks and financial intermediaries to be cognisant of it.

Meanwhile, the report stated that the bank credit growth has remained subdued, with the moderation being broad-based across bank groups, adding that the market volatility management amidst the rising spillovers have become challenging.

"The policy measures by regulators and the government have ensured the smooth functioning of domestic markets and financial institutions," the report said.

The RBI had declared a six-month moratorium which ended in August and later announced a one-time loan recast package to help borrowers. Many banks, especially the private sector ones, have already raised safety capital in the early days of the pandemic.