Shaktikanta Das Banking Crisis
The Shaktikanta Das banking crisis is a financial crisis that occurred in India during the 2020-2021 fiscal year. It was caused by an increase in non-performing assets (NPAs) and liquidity issues among Indian banks, leading to a sharp decline in the Indian rupee’s value. The Reserve Bank of India (RBI) Governor, Shaktikanta Das, responded to the situation with several measures intended to restore confidence and stabilise the economy.
Background
Before the beginning of 2021, Indian banks had been facing increasing pressure due to rising bad loans or NPAs for some time now. This led to increased defaults on loan repayments and a surge in stressed assets across sectors such as telecommunications and infrastructure projects involving public sector companies which had taken large loans from banks. This resulted in severe liquidity shortages amongst lenders who were unable to pay back depositors or borrowings from other sources due to their weak balance sheets. Consequently, this also impacted investor sentiment towards Indian stocks resulting in stock indices declining by around 10%.
RBI’s Response
In order to help ease the situation, RBI Governor Shaktikanta Das announced several measures including injecting Rs 50 billion into bank systems through National Stock Exchange (NSE) bonds; permitting lenders greater flexibility when it comes granting moratorium on repayment schedules; providing fresh capital infusion of up to Rs 4 trillion over two years; introducing one-time restructuring facility through which borrowers can restructure existing debt without any classification downgrade; along with several other measures aimed at improving credit flow between banks and enhancing market transparency . These steps have helped restore stability within certain parts of the banking system but further steps will be needed for complete recovery from this crisis.
