The Reserve Bank of India (RBI) in its bi-annual financial stability report asked the banks to increase the capital positions while the favourable market conditions are prevailing, they shall improve the governance as well as be vigilant with respect to the threats globally. In other words, the central bank asked the banks to keep a watch on their exposure to the retail and small businesses since both areas have potential risks associated. The banks were also asked to internalize the expectations since the frictional inflation pressure influence during the first half of the year.
The Report highlighted that customer risk distribution of the credit-active population saw a marginal shift towards the high-risk segment during January 2021 as compared to the previous year. Moreover, the consumer credit portfolios of the non-public sector banks are undergoing a higher sign of stress.
While in case of MSMEs a good rise of 9.23 per cent was shown by private sector banks as against 0.89 per cent shown by their state-run rivals, this was with regards to the faster growth of the Emergency Credit Line Guarantee Scheme of the government under which 2.46 lakh crore rupees were allowed from February 2021.
Since 2019 the weakness in the MSME portfolio of banks and NBFCs called for regulatory attention, with the reserve bank permitting restructuring of temporarily impaired MSME loans of up to Rs. 25 crore under 3 different schemes.
Though the PSBs have undertaken restructuring under all schemes, participation by private banks was significant only during the COVID-19 restructuring scheme of 2020, however, the risk of MSME portfolios of PSBs remain all-time high.
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