RBI<\/a> Governor Shaktikanta Das said that the banks should look deeply within and reorient banking after the coronavirus pandemic. Shaktikanta Das added that the core of resilient banks is made up of good governance, effective risk management, and robust internal controls, according to the RBI\u2019s September bulletin. He further said that as boosting the immunity of the population is the key to tackle pandemic, the key to long term financial stability would be to foster tangible improvement in the inherent ability of the banks to withstand the shocks like the current pandemic. It has been suggested that banks need to look out for \u2018sunrise\u2019 sectors while supporting those which have the potential to bounce back.\u00a0<\/span><\/p>\nThe RBI governor asked banks to look at prospective business opportunities in the rural sector which remain unexplored despite efforts to support it. Startups, renewables, logistics, value chains, etc, are other such potential areas where the banks have been suggested to tap the opportunities. Shaktikanta Das said that the banking sector has a responsibility not only as a facilitator of growth of the economy but also to earn its own bread. Thus, a complete relook at the business strategy and orientation is the immediate need of the hour.<\/span><\/p>\nAn inappropriate business model; the lack of governance and decision making; and misalignment of internal incentive structures with external stakeholders\u2019 interests are cited as the characteristics of weak banks by theRBI. However, Shaktikanta Das clarified that it is not that Indian banks do not have sound governance and risk management systems in place but there is always scope for improvement and these are the areas that need greater attention going forward.\u00a0<\/span><\/p>\nMeanwhile, the July\u2019s Finacial Stability Report showed that the gross NPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario. It added if the macroeconomic environment worsens, the ratio may further escalate to 14.7 per cent under the very severely stressed scenario. On the rising NPAs, Shaktikanta Das had said that the country\u2019s financial system is sound but lenders should desist from extreme risk aversion during Covid-19 pandemic and beyond. He had added that the top priority for banks and financial intermediaries should be for augmenting capital levels and improve resilience.<\/span><\/p>\n
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