Banks, monetary establishments ought to proactively undertake stress testing of mortgage books: RBI DG Rao

Regardless of the advance in asset high quality, monetary establishments, together with banks, must proactively undertake stress testing of mortgage books to look at their loss absorption limits and take steps to enhance them wherever required, RBI Deputy Governor M Rajeshwar Rao mentioned on Thursday.

The gross non-performing property (GNPAs) and web NPAs of banks improved to five.97 per cent and 1.7 per cent as of March 31, 2022, from 9.23 per cent and three.66 per cent as of September 2019, respectively, he mentioned.

Though the asset high quality has improved from the pre-pandemic ranges, lenders ought to confirm whether or not that is on account of higher fundamentals or as a result of regulatory help prolonged to take care of the impression of the pandemic, he famous.

“We anticipate banks and different monetary establishments to proactively undertake stress testing of their mortgage books, subjecting them to numerous ranges of stress, together with excessive eventualities, to estimate the loss absorption limits wherever obtainable at their disposal, and take measures to enhance the identical wherever crucial,” Rao mentioned at an occasion organised by IMC Chamber of Commerce and Trade.

He mentioned whereas the central financial institution has tried to fight the impression of the pandemic on the monetary system, (however) the duty is just half carried out.

“We’ve got to make sure that the monetary system escapes unscathed as we exit from the pandemic-driven regulatory forbearances,” Rao mentioned.

Rao mentioned the pandemic noticed the monetary sector having fun with beneficial momentum with a rise in liquidity, the move of credit score and regular spending on reduction programmes.

“It’s getting more and more debated within the world fora as as to if the pandemic-induced measures have led to a build-up of leverage and debt overhang within the non-financial sector.

“Prudence must be exhibited by banks to determine whether or not the present ranges of asset high quality being exhibited is on account of enchancment in fundamentals of enterprise on account of deleveraging and effectivity positive aspects or on account of help prolonged by authorities by means of the measures,” the deputy governor famous.

He mentioned the RBI will quickly difficulty a dialogue paper on the introduction of a framework on anticipated credit score loss fashions for banks.

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