The Reserve Bank of India has warned that a moratorium on loans, delays in interest payments, and loan restructuring could affect banks if they are not handled carefully. The RBI’s annual report underlines the assessment that the bank’s creditworthiness rates will increase. It also proposes to increase the capital adequacy of banks in the public and private sectors.
In March, RBI had announced several measures such as a six months moratorium on loans and a one-time loan restructuring of loans to help the Pandemic hit the economy. But these measures have resulted in a big spike in non-performing assets in Banks. Financial Stability Report, July 2020, underlines that the NPAs may increase 1.5 times above their March 2020 levels under the baseline scenario and by 1.7 times in a very severely stressed scenario. The system-level CRAR can decrease to 13.3 percent in March 2021 from its March 2020 level under the baseline scenario and to 11.8 percent under the very severe stress scenario, the RBI said.
If the resource distribution was the job of the market, it is now being done by the government and banks. The central bank suggests more ease in the restrictions made by the government to protect the banks. Expenditure on revenue from the central government increased by 33.7% in the first quarter of this financial year. The debt and liabilities of the COVID period will determine the way forward. The report proposes to increase the number of taxpayers to improve revenue, minimize tax evasion, and make the goods and services tax system flawless. The assessment is that entrepreneurs are turning their backs on investment from the private sector. The bulk of the revenue from corporate tax deductions has been utilized for loan payments etc.
It is proposed to monetize government assets in the steel, coal, energy, land and railway sectors and privatize large ports to increase investment in the private sector. The GST council model should be put in place to bring about structural changes in the areas of land, employment, and energy. States should be encouraged to make landless land available with infrastructure.
