As the economy reels under the pandemic and post lockdown woes, Federal Reserve Bank of India (RBI) Governor Shaktikanta Das is of the view that extreme risk aversion by financial institutions will have adverse outcomes for all.
Noting that India’s economic system remains sound, Das, in his foreword to the RBI’s latest Financial Stability Report, wrote that within the current environment, the necessity for financial intermediaries to proactively augment capital and improve their resilience has acquired top priority.
“In the evolving milieu, while risk management has got to be prudent, extreme risk aversion would have adverse outcomes for all,” he wrote.
The Governor’s statement gains significance as concerns are raised that banks are still risk-averse and are largely shying faraway from lending generally, apart from the sovereign guaranteed ECLGS loans for MSMEs.
The Financial Stability Report for July 2020 also shows that bank credit, which had considerably weakened during the primary half 2019-20, slid down further within the subsequent period with the moderation becoming broad-based across bank groups.
“Subdued bank credit shows clear signs of risk aversion,” the report said.
The Governor also said that currently there’s a growing disconnect between the movements in certain segments of monetary markets and real sector activity.
The pandemic hit India during a period of growth moderation and therefore the ensuing disruptions in demand conditions and provide chains are aggravated by global spillovers, he added.
“Of late, signs of a gradual recovery from the nationwide lockdown are getting visible,” Das said.
(With Inputs from TheNewsMinute)