RBI cautions banks to be watchful of restructured loans

 Flags possibility of increased slippages from sectors more exposed to pandemic

The Reserve Bank of India (RBI) has cautioned commercial banks to be watchful of the risk of increased ‘slippages’ on advances that were restructured during the COVID-19 pandemic, especially as the economy recovers from the impact of the public health crisis.

“The banking sector has witnessed improved financial parameters despite the COVID-19 pandemic,” the RBI observed in its annual report for 2021-2022 released on Friday. “There is, however, a need to be watchful of the credit behaviour of the restructured advances and possibility of increased slippages arising from sectors that were relatively more exposed to the pandemic,” the central bank warned.

“With the unwinding of support measures, some of the restructured accounts might face solvency concerns, with the impact on banks’ balance sheets becoming clearer in the upcoming quarters. Prudence warrants proactive recognition of any non-viable accounts to activate timely resolution,” it added.

The RBI said going forward, as the economy recovers and credit demand rises, banks would need to focus on supporting credit growth while being vigilant of the evolving risks.

“Care needs to be taken to ensure that fresh slippages are arrested, and banks’ balance sheets are strengthened to avoid future build-up of stress,” it emphasised.

Highlighting that the setting up of the National Asset Reconstruction Company Ltd. (NARCL) would help in the resolution of large value, legacy stressed assets, and which would serve as a time-efficient mechanism for reviving investor interest in primary and secondary markets for stressed assets, RBI said going forward, continued commitment, professionalism and transparency in operation would help in making the exercise cost- and time-effective.