Reserve Bank of India (RBI) released its 8th Financial Stability Report (FSR) on 30 December 2013. The FSR was released against the backdrop of a mild positive market reaction to the announcement of tapering in the US Federal Reserve bond purchase plan from January 2014.
Major Highlights of the report are:
India's external sector has improved with reduction in Current Account Deficit (CAD). CAD is expected to be less than 3 per cent of the GDP during the current financial year 2013-14.
Report revealed that the banking system is facing rising tide of bad loans. The gross non-performing assets (NPAs) in the system will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013.
The amount of recast loans touched an all-time high of 10.2 per cent of the overall advances as of September 2013.
The state-run banks will be the worst-affected, the report said, pegging the gross NPAs for public sector banks at 4.9 per cent by March 2015. It projected the gross NPAs for private banks at 2.7 per cent in the same period.
Asset quality continues to be a major concern for Scheduled Commercial Banks (SCBs). The Gross Non-performing Assets ratio of SCBs as well as their restructured standard advances ratio has increased.
Five sectors — infrastructure, iron & steel, textiles, aviation and mining — have a high level of stressed advances. At system level, these five sectors together account for around 24 per cent of total advances of commercial banks and around 51 per cent of their total stressed advances.
Due to the interconnectedness with banks, liquidity pressure is felt by the money market mutual funds (MMMFs) whenever redemption requirements of banks are large and simultaneous. Regulatory measures are taken to reduce the degree of interconnectedness seem to have been successful in reducing the liquidity risk in the system.
However, macro-economic adjustment is far from complete, with persistence of high inflation amidst growth slowdown. Fall in domestic savings and high fiscal deficit are other major concerns for India.
Macro stress tests on credit risk suggest that if the adverse macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further. However, under improved conditions, the present trend in credit quality may reverse during the second half of 2014.
India's external sector has improved with reduction in Current Account Deficit (CAD). CAD is expected to be less than 3 per cent of the GDP during the current financial year 2013-14.
Report revealed that the banking system is facing rising tide of bad loans. The gross non-performing assets (NPAs) in the system will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013.
The amount of recast loans touched an all-time high of 10.2 per cent of the overall advances as of September 2013.
The state-run banks will be the worst-affected, the report said, pegging the gross NPAs for public sector banks at 4.9 per cent by March 2015. It projected the gross NPAs for private banks at 2.7 per cent in the same period.
Asset quality continues to be a major concern for Scheduled Commercial Banks (SCBs). The Gross Non-performing Assets ratio of SCBs as well as their restructured standard advances ratio has increased.
Five sectors — infrastructure, iron & steel, textiles, aviation and mining — have a high level of stressed advances. At system level, these five sectors together account for around 24 per cent of total advances of commercial banks and around 51 per cent of their total stressed advances.
Due to the interconnectedness with banks, liquidity pressure is felt by the money market mutual funds (MMMFs) whenever redemption requirements of banks are large and simultaneous. Regulatory measures are taken to reduce the degree of interconnectedness seem to have been successful in reducing the liquidity risk in the system.
However, macro-economic adjustment is far from complete, with persistence of high inflation amidst growth slowdown. Fall in domestic savings and high fiscal deficit are other major concerns for India.
Macro stress tests on credit risk suggest that if the adverse macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further. However, under improved conditions, the present trend in credit quality may reverse during the second half of 2014.
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