Question

Question 2
Write a memo outlining the impact that COVID-19 has had on credit risk for the bank. Suggest some strategies the bank can use to manage this risk in the next 6-12 months.

Answer 1

The central bank in india RBI’s given a guidelines to permitting banks and non-bank financial institutions to grant a three-month moratorium on loan repayments will soften the negative credit impact that the coronavirus has had on their borrowers in the near term. “However, there are still material downside risks to asset quality given the halt in India’s economy, the impact of which will not beknown until a few quarters after the end of the moratorium.”Even Non-bank lenders may see a hit on asset quality, with the added strain of raising funds from the market. “The RBI’s recent liquidity and regulatory support measures should help to improve the funding environment in the near term, but it also underlines the severity of the situation and it sees continued uncertainty in the coming months nonetheless,”current disruptions are coming over and above already existing asset quality stress, the bad loan cycle could get extended further.

some strategies the bank can use to manage this risk in the next 6-12 months can be

1. Rate cuts from central govt
2. Relief package for the banking sector from RBI.
3. Revenue expansion for the bank
4. Reduce NPA's
5. To Increase liquidity.

This strategies can be useful for the banking sector to revive from the damage of the covid -19 pandemics in the banking sector.