The Indian economy has started showing signs of normalcy with ease in lockdown restrictions across the country, RBI Governor Shaktikanta Das said on Saturday.
He added that post containment of COVID-19, a very careful trajectory has to be followed in orderly unwinding of countercyclical regulatory measures.
The financial sector should return to normal functioning without relying on regulatory relaxation as the new norm, he added.
“Indian economy has started showing signs of going back to normalcy after easing of restrictions,” Governor Das said at the 7th SBI Banking and Economics Conclave.
While the multi-pronged approach of the Reserve Bank has provided a cushion from the immediate impact of the pandemic on banks, the medium-term outlook is uncertain and depends on the COVID-19 curve, he said.
“Policy action in medium-term would require a careful assessment of how the crisis unfolds,” he said, adding that building buffers and raising capital will be crucial not only to ensure credit flows but also to build resilience in the financial system.
The country’s banking and financial system is capable of rising to the occasion in meeting this challenge, he asserted.
In these challenging times, banks have to improve their governance and sharpen their risk management, he said.
Banks will also have to raise capital in an anticipatory basis instead of waiting for a situation to arise, Das noted.
The economic impact of the pandemic due to the lockdown and anticipated post-lockdown compression in economic growth may result in higher non-performing assets and capital erosion of the banks, Das cautioned.
A recapitalisation plan for public and private sector banks has therefore become absolutely necessary, he said.