Banks need to raise, conserve capital in COVID-19 times, says former RBI deputy governor NS Vishwanathan

Commercial banks of the country are required to raise capital at this juncture even if it is not needed as the COVID-19 pandemic has made the future uncertain, former deputy governor of RBI N S Vishwanathan said.

He said raising resources at the moment is essential as it might not be available or become exorbitant when actually needed.

"Banks are required to raise capital at the moment. They need to raise and conserve capital. This is because when it is needed, capital may not be available or become highly expensive," Vishwanathan said while speaking at a webinar organised by Enqube Collaboration.

According to him, both the government and the RBI have announced a slew of measures to limit the debilitating effect of COVID-19.

"However, the future is uncertain and the contraction of the economy is sure to happen," he said.

NPA levels of banks are sure to go up and the entire risk management mechanism will undergo a paradigm shift, Vishwanathan observed.

Banks are required to be adequately capitalised and the cost-to-income ratio has to be lowered, he added.

MD and CEO of Punjab National Bank SSS Mallikarjuna Rao also highlighted the importance of maintaining asset quality and raising capital.

A sectoral assessment has to be done and there is also a need to assess the damage caused by the COVID-19 pandemic, Rao said.

Challa Srinavasalu Setty, MD of SBI (digital and retail banking), said the pandemic has impeded the economic activity of the country.

In such a scenario, business continuity plan (BCP) has been tested to the extreme, particularly on human resources, he said. According to him, 91 percent of SBI's transactions are outside the bank branches.