Banks’ profitability remains fragile

Banks’ profitability remains fragile

The profitability of the Indian banking sector remains fragile, Reserve Bank of India Governor Shaktikanta Das said, despite the sector turning around on the back of improvement in asset quality, with enhanced resolutions through the Insolvency and Bankruptcy Code (IBC).

Issues:

The banks continue to face challenges like the present crisis in the telecom sector.

• The capital position of banks has improved on account of the recapitalization of public sector banks by the government and capital raising efforts by private sector banks.
• The RBI Governor suggested that sector-specific pockets of stress needed policy attention.
• On the issue of resolution of asset quality, the RBI Governor expects to have an integrated framework for resolution of financial firms operating in India, shortly.
• On consolidation in public sector banks, he said a properly worked out consolidation of PSBs can generate synergies in the allocation of workforce and branches.
• He highlighted that the focus has to be on ushering in significant improvements in the efficiency and rationalization of scarce capital to meet the capital adequacy requirements.
• As far as regulation of banks is concerned, he said the RBI was focussing on a sharper and more forward-looking off-site surveillance framework, apart from on-site supervision.
• On non-banking finance companies, he said recognizing the systemic importance of such entities and their inter-linkages with the financial system, the RBI had taken steps and the asset-liability management (ALM) position and other aspects of top 50 NBFCs were being closely monitored, covering all NBFCs with asset size above Rs. 5,000 crores.
• The ALM of top 51-100 NBFCs is also being examined by the respective regional offices of the Reserve Bank, he added.
• He reiterated that the RBI would also issue draft guidelines on corporate governance in banks.

Source: The Hindu