India's Financial System Remains Stable Notwithstanding Weakening Domestic Growth Says RBI

The Reserve Bank of India released the 20th issue of the Financial Stability Report (FSR). India's financial system remains stable notwithstanding weakening domestic growth; the resilience of the banking sector has improved following recapitalisation of Public Sector Banks (PSBs) by the Government. Risks arising out of global/domestic economic uncertainties and geopolitical developments, however, persist. Scheduled commercial banks' (SCBs) credit growth remained subdued at 8.7% year-on-year (y-o-y) in September 2019, though Private Sector Banks (PVBs) registered double digit credit growth of 16.5%. SCBs' capital adequacy ratio improved significantly after the recapitalisation of public sector banks (PSBs) by the Government. SCBs' gross non-performing assets (GNPA) ratio remained unchanged at 9.3% between March and September 2019. Provision Coverage Ratio (PCR) of all SCBs rose to 61.5% in September 2019 from 60.5% in March 2019 implying increased resilience of the banking sector. Macro-stress tests for credit risk show that under the baseline scenario, SCBs' GNPA ratio may increase from 9.3% in September 2019 to 9.9% by September 2020 primarily due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth.

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