06 APR,2020 | MEDC
The ongoing national lockdown coupled with sluggish economic growth is impacting the profitability of banks. In the current environment, asset quality stresses are expected to exert pressure on the capital adequacy ratios of public sector banks (PSBs) more than their private sector counterparts, who are relatively better capitalized. Moody’s has gone to the extent of revising the outlook for the Indian banking system to negative from stable earlier. RBI had suggested last year that the dependence of PSBs on the government for capital should end. However, it is not yet clear whether that is likely to happen. While the proposed amalgamation of various banks could provide those new entities economies of scale in the long term, credit growth and asset recovery could take a hit in the short term. Covid-19 has upended many calculations, and so policymakers need to tread carefully.
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