There has been a modest pick-up in bank credit alongside an improvement in transmission of monetary policy signals, the RBI noted in its report on Trends and Progress of Banking in India (2016- 2017). It said that loan growth of scheduled commercial banks had improved to 6.2 per cent at the end of September 2017 as compared to 5 per cent at end-June 2017. Stressed assets have stabilised at an elevated level (12.2 per cent in Q2 of 2017-18).
The report noted that the relatively better performance of the NBFC sector, with their balance sheets expanding 6 per cent year-on-year in the first half. Their loan book grew at an impressive 14.9 per cent, a full 7 percentage points higher than previous year.
The RBI noted that the resolution of stressed assets and strengthening of public sector banks' balance sheets is the top priority. It said the enactment of the Insolvency and Bankruptcy Code (IBC) had altered the financial landscape and imbued with optimism and resolve the ongoing efforts for resolution of stress. These efforts along with the prompt corrective action initiated by the RBI was intended to instill confidence in the system so that accumulation of excessive financial imbalances in future would be prevented, the RBI said.
The RBI noted that initiatives such as public credit registry to address information asymmetries in credit markets, developing robust accounting standards and IFRS converged accounting standards will help banks. These standards will see banks make provisions for expected losses even when the loan is originated rather than wait for a trigger event to signal imminent loss.
Overall provisions are expected to increase significantly on initial application of Ind-AS effective from April 1, 2018, the RBI noted. The RBI noted that after the setting up of payment and small finance banks, it was now exploring the scope of setting up wholesale long-term finance banks, which will focus primarily on lending to infrastructure, and small, medium and corporate business.