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RBI stress tests on Indian banks show sufficient capital is there

The Reserve Bank of India’s Annual Report 2021 state that stress tests indicated that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario. The report, released on 27 May said bank-wise as well as system-wide supervisory stress testing provide clues for a forward-looking identification of vulnerable areas. With the lifting of the interim stay on asset classification standstill by the Supreme Court on 23 March 2021 banks’ asset quality will need to be closely monitored in coming quarters, with preparedness for higher provisioning, the RBI said. The waiving of interest on interest charged on loans during moratorium period (1 March 2020 to 31 August 2020) may also impinge on lending institutions’ finances, the report said.  Last year, the RBI announced a six months moratorium for all term loan borrowers in the wake of Covid impact on borrowers. The moratorium was provided immediate relief to stressed borrowers and helped banks to avert an immediate spurt in bad loans. The report also said the RBI will ensure that system level liquidity will remain comfortable during 2021- 22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability. It said this is exemplified by the introduction of the secondary market G-sec acquisition programme (G-SAP) in 2021-22 under which the RBI has committed upfront to a specific amount for open market purchases of G-secs with a view to enabling a stable and orderly evolution of the yield curve under congenial financial conditions.

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