Banks need to keep a close eye on asset quality and prepare for higher provisioning: RBI

Banks need to keep an eye on asset quality and prepare for a higher provision: RBI

Business News: Banks need to keep a close eye on asset quality and prepare for higher provisioning: RBI.

The Reserve Bank of India (RBI) on Thursday asked banks to keep an eye on their bad loans and prepare for higher provisions in the wake of the second wave of COVID and the Supreme Court order lifting the classification ban. of impaired assets.

The waiver of compound interest on all loan accounts that opted for a moratorium between March and August 2020 could put a strain on banks’ financial health.

The annual report also stressed the need for banks to keep a non-performing asset sheet (NPA) and consequently set aside capital for provisions.

“With the lifting of the interim suspension of asset classification by the Hon’ble Supreme Court on March 23, 2021, the quality of banks’ assets will need to be closely monitored in the coming quarters, with preparation for higher provisions,” he said. .

The waiver of interest on interest charged on loans during the moratorium period (March 1, 2020 to August 31, 2020) can also affect the finances of credit institutions.

In March of this year, the Supreme Court ordered banks to waive compound interest on loans above Rs 2 crore for borrowers who had benefited from the moratorium as loans below this amount earned general interest on the waiver of loans. interest in November last year.

The compound interest support scheme for the moratorium on loans cost the government 5,500 crore rupees during 2020-21 and the scheme covered all borrowers, including the fast one that did not benefit from the moratorium.

In March last year, RBI announced a loan moratorium on the payment of term loan installments due between March 1 and May 31, 2020, due to the pandemic and subsequently extended to August 31.

Considering the potential stress due to COVID, banks have been advised of the deferral of the phase-in of the last tranche of Capital Conservation Buffer (CCB) of 0.625% from From 30 September 2020 to 1 April 2021. It has been further deferred by six months to 1 October 2021. CCB is not applicable to small financial banks, payment banks, rural regional banks and local area banks.