SME Times News Bureau | 27 Jul, 2020
As the economy reels under the pandemic and post lockdown
woes, 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 financial system remains sound, Das, in his foreword to the
RBI's latest Financial Stability Report, wrote that in the current environment,
the need for financial intermediaries to proactively augment capital and
improve their resilience has acquired top priority.
"In the evolving milieu, while risk management has to be prudent, extreme
risk aversion would have adverse outcomes for all," he wrote.
The Governor's statement gains significance as concerns have been raised that
banks are still risk averse and are largely shying away from lending in
general, except for 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 first half of 2019-20, slid down further
in 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 is growing disconnect between the
movements in certain segments of financial markets and real sector activity.
The pandemic hit India in a period of growth moderation and the ensuing
disruptions in demand conditions and supply chains have been aggravated by
global spillovers, he added.
"Of late, signs of a gradual recovery from the nationwide lockdown are
becoming visible," Das said.