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India’s financial system remains stable against the backdrop of improving resilience of the banking sector, even though the emerging trends in global economic as also geopolitical environment pose challenges, the Reserve Bank of India said on Thursday.
Releasing the 19th issue of the Financial Stability Report (FSR), the central bank also said that with the bulk of the legacy non-performing assets (NPAs) already recognised in the books of the banks, the NPA cycle seems to have turned around.
Credit growth up
“Credit growth of scheduled commercial banks (SCBs) picked up, with public sector banks (PSBs) registering near double-digit growth. The capital adequacy of the SCBs improved after the recapitalisation of the PSBs,” the RBI said.
The provision coverage ratio (PCR) of all SCBs rose sharply to 60.6 per cent in March 2019 from 52.4 per cent in September 2018 and 48.3 per cent in March 2018, increasing the resilience of the banking sector.
Macro-stress tests for credit risk indicate that under the baseline scenario, SCBs’ gross non-performing asset (GNPA) ratio may decline from 9.3 per cent in March 2019 to 9.0 per cent in March 2020.
The RBI pointed out that global economic activity continues to face significant headwinds since the second-half of 2018, culminating in a lower global growth forecast of 3.3 per cent in 2019. Adverse geopolitical developments and trade tensions are gradually but predictably taking a toll on business and consumer confidence.
“The domestic economy hit a soft patch recently as private consumption, the key driver of the GDP, turned weak. This, along with subdued new investment pipeline and a widening current account deficit, has exerted pressure on the fiscal front,” the RBI said.
“Reviving private investment demand remains a key challenge going forward while being vigilant about the spillover from global financial markets,” it added.
On the stress related to the NBFC sector, the central bank said that recent developments have brought the sector under greater market discipline.
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