Reserve Bank of India (RBI) Governor Shaktikanta Das said the COVID-19 pandemic "threatens" to result in balance sheet impairments and capital shortfalls at banks, particularly once regulatory reliefs are rolled back. In his foreword to the biannual Financial Stability Report (FSR), Das said easy liquidity and financing conditions have shored up the financial parameters of banks but made it clear that the "available accounting numbers obscure a true recognition of stress".

He asked banks to exploit the current conditions to augment capital and also alter their business models, which will help in the future. Fiscal authorities are witnessing revenue shortfalls and the resultant expansion in the market borrowing program of the government has "imposed additional pressures on banks", Das said.

The disconnect between certain segments of financial markets and the real economy has been accentuating in recent times, he said, warning that the stretched valuations of financial assets pose risks to financial stability. Das asked banks and financial intermediaries to be cognisant of these risks.

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