Indian Economy Strong, Banks' Bad Debts Lowest In Years: RBI
On Thursday, the Reserve Bank of India (RBI) issued the December 2023 edition of the Financial Stability Report, the 28th release, which reflects the comprehensive evaluation conducted by the Financial Stability and Development Council's (FSDC) Sub-Committee. This assessment focuses on analysing risks to financial stability and the Indian financial system's resilience.
The RBI's report highlighted a decline in scheduled commercial banks' gross non-performing assets (GNPA) ratio to a multi-year low of 3.2 per cent and the net non-performing assets (NNPA) ratio to 0.8 per cent as of September 2023.
Key points from the Financial Stability Report include the global economy facing various challenges such as slowing growth prospects, high public debt, increased economic fragmentation and prolonged geopolitical conflicts. However, it emphasised the improved resilience of Non-Banking Financial Companies (NBFCs) with strengthened capital to risk-weighted assets ratio, GNPA ratio and return on assets as of September 2023.
The RBI emphasised the resilience of the Indian economy and the domestic financial system, citing strong macroeconomic fundamentals, robust financial institution balance sheets, controlled inflation, improved external sector performance, and ongoing fiscal consolidation. Yet, it cautioned about the challenges confronting the global economy.
The report also detailed the capital to risk-weighted assets ratio (CRAR) and common equity tier 1 (CET1) ratio of scheduled commercial banks (SCBs), standing at 16.8 per cent and 13.7 per cent, respectively, in September 2023.
Additionally, it highlighted macro stress test results indicating SCBs' ability to meet minimum capital requirements, projecting system-level CRAR in September 2024 under baseline, medium and severe stress scenarios.
The RBI underscored the periodic nature of Financial Stability Reports, clarifying their purpose in reviewing risks impacting the macroeconomic environment, financial institutions, markets and infrastructure. These reports serve to gauge the financial sector's resilience through stress tests.
