Reserve Bank of India (RBI) Governor Shaktikanta Das on Saturday said the Covid-19 pandemic is the worst health and economic crisis in the last 100 years with unprecedented negative consequences for output, jobs and well-being, while sounding the alarm on Indian economy’s medium-term outlook.
Addressing the 7th SBI Banking & Economic Conclave, Das said the pandemic has dented the existing world order, global value chains, labour and capital movements across globe. However, he added that “perhaps, it represents so far the biggest test of robustness and resilience of our economic and financial system”. I
The Indian economy's medium-term outlook remains uncertain even though the country has started re-opening after over two months of a nationwide lockdown, as demand and supply shocks due to the coronavirus still loom large, the central bank governor said.
Policy responses by the central bank appear to have worked so far, but going forward the situation would need even more careful assessment, said Das
Das, however, added that the Indian economy has started showing signs of normalcy with ease in lockdown restrictions across the country, and post containment of COVID-19, a very careful trajectory has to be followed in orderly unwinding of countercyclical regulatory measures.
The financial sector should return to normal functioning without relying on regulatory relaxation as the new norm, he added. "Indian economy has started showing signs of going back to normalcy after easing of restrictions," he said.
The country's banking and financial system is capable of rising to the occasion in meeting this challenge, he asserted. In these challenging times, banks have to improve their governance and sharpen their risk management, he said.
Banks will also have to raise capital in an anticipatory basis instead of waiting for a situation to arise, Das noted. The economic impact of the pandemic due to the lockdown and anticipated post-lockdown compression in economic growth may result in higher non-performing assets and capital erosion of the banks, Das cautioned. A recapitalisation plan for public and private sector banks has therefore become absolutely necessary, he said.
(With inputs from Reuters, PTI)