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Non-performing Assets (NPAs) Fear:
Why is it in news:
- RBI Governor has warned about the likely increase in bad loans across banks, given the economic fallout from the COVID-19 pandemic.
More from RBI Governor:
- The economic impact of the pandemic and anticipated post lockdown may result in higher NPAs.
- The minimum capital requirements for banks, which had been set based on historical loss events, were likely to be rendered less than sufficient to absorb lenders’ losses.
- Meeting the minimum capital requirement is necessary, but not a sufficient condition for financial stability.
Suggestions by Governor:
- Policy action for the medium-term would require a careful assessment of how the crisis unfolds.
- Building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.
- All lenders including NBFCs, should conduct periodic “stress tests” to gauge the impact of the pandemic on their balance sheets, asset quality and liquidity.