The Reserve Bank of India on Tuesday said that banks need to further bolster their capital positions to absorb potential slippages as well as to sustain the credit flow, especially when monetary and fiscal measures unwind.
"Although credit offtake by banks remained subdued in an environment of risk aversion and muted demand conditions during 2020-21, a pick up has started in Q2:2021-22, with the economy emerging out of the shadows of the second wave of Covid-19," the RBI said in its report 'Trend and Progress in Banking in India 2020-21'.
"Going forward, revival in bank balance sheets hinges around overall economic growth which is contingent on progress on the pandemic front."
The report also said that although most of the regulatory relaxation measures have run their course, but the full extent of their impact on banking is yet to unravel.
Furthermore, the RBI said: "Banks would need to strengthen their corporate governance practices and risk management strategies to build resilience in an increasingly dynamic and uncertain economic environment."
The report recommended that banks have to prioritise upgrading their IT infrastructure and improving customer services, together with strengthening their cybersecurity at a time when rapid technological advancements are taking place in the digital payments landscape and emergence of new entrants across the FinTech ecosystem.
"The changing nature of banking - especially the increasing use of technology - presents challenges as well as opportunities for an inclusive and sound banking sector and the regulatory and supervisory function needs to keep pace."
In addition, the RBI said that while credit offtake in the country remained subdued, elevated deposit growth on the liabilities side was matched by growth in investments on the assets side.