It is imperative for banks to proactively raise capital as the compression in economic growth may lead to increase in non-performing assets for banks and consequently erode their capital, Reserve Bank of India (RBI) Governor Shaktikanta Das said Saturday.
To counter the increasing vulnerabilities, Das said banks have to focus on improving their governance and risk management and build capital buffers.
Speaking at State Bank of India (SBI)’s banking and economics e-conclave, Das said the pandemic is the biggest test of the robustness and resilience of the economic and financial system.
“The economic impact of the pandemic — due to lock-down and anticipated post lock-down compression in economic growth — may result in higher non-performing assets (NPAs) and capital erosion of banks. A recapitalisation plan for PSBs (public sector banks) and private banks (PVBs) has, therefore, become necessary,” Das said.