A few days after the Reserve Bank of India (RBI) raised the repo rate for the first time in almost four years, Governor Shaktikant Das will meet heads of public sector banks (PSBs) on May 17 to review credit flows and assess asset quality perspectives. , Source FE says. It could also take stock of the strategy of state-run banks to deal with rising interest rates without disrupting the dynamics of slave growth, they added.
The meeting comes amid fears that the central bank may be forced to move to another phase of aggressive rate hikes and liquidity-tightening measures to control fugitive retail inflation, which reached a 95-month high in April. On May 4, the Monetary Policy Committee (RBI) resorted to an out-of-cycle repo rate increase of 40 basis points, the sharpest increase in almost 11 years, to 4.4%.
The governor will review the efficiency of state-run banks in procurement, consumer grievance redressal measures, digital banking units, lending to government agencies, IT infrastructure and cyber security structures, and any other issues lenders may want to address, sources said.
“PSBs are preparing presentations on various aspects of their activities. The governor may want to know the reaction of bankers on how they plan to tackle the new reality of improved interest rates and tight liquidity, and what impact it could have on bank loans, asset quality and the larger operating environment, a banking source said.
Another source said that digital banking units could be featured in the talks and the RBI could review banks’ readiness to roll them out before Independence Day.
Moreover, the discussion of resource quality assumes significance, as some special measures extended by regulators in the event of an epidemic have expired. The RBI had in December warned of increasing pressure on bank books after the expiration of special schemes. However, given their adequate capital adequacy, banks will be able to absorb the push, it added.
Late last month, Financial Services Secretary Sanjay Malhotra also met with PSB chiefs and advised them to address the growing credit hunger of a rapidly recovering economy that is also facing considerable external headwinds in the wake of the Russia-Ukraine conflict.
Non-food bank credit rose 9.7% in March from 8% a month earlier and 4.5% a year earlier. However, debt in the industry grew at a slower pace of 7.1% even on a marginal contract basis.
Despite the improvement in credit flows in recent months, the government believes there is ample opportunity to further strengthen lending. In the light of rising global commodity prices, India Inc. has a growing need for working capital. In addition, select sector companies such as steel and chemicals have begun to expand, kicking the private investment cycle.
The official source said that the improved financial arrangements of the PSBs have significantly improved their lending capacity. The first three quarters of FY22 saw no state-run bank losses; Indeed, together, they have recorded a net profit of `48,874 crore during this period. That’s more than the F 31,820 crore profit for the whole of FY21, the highest in five years. According to the RBI’s data on domestic activity, the total bad debt of state-owned banks has come down from 9.36% in December 2021 to 8.18% of total advances in December 2021.