30 AUG,2020 | MEDC
The RBI Governor has rightly said that among the cause of weaknesses in banks are an inappropriate business model given the current environment, the lack of governance and decision making, and misaligning internal incentive structures with external shareholder interests. The RBI has taken certain temporary measures to mitigate Covid stress, which need appreciation. The RBI has also wisely decided to keep its powder dry as a rainy day could be just around the corner. Banks need to carefully review their lending practices while evaluating sunrise sectors and those having the potential to bounce back. The Covid related shock has put great pressure on the balance sheets of most banks, and this could erode their capital. Banks should respond to the situation proactively and start raising capital, while simultaneously taking a thorough relook at their business strategies. The future of the entire financial services sector is now at stake if any form of recklessness is resorted to by any of the players.
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