Performance of the Indian banking sector remained subdued during 2015-16 year amidst rising proportion of banks' delinquent loans, consequent increase in provisioning and continued slowdown in credit growth, said Reserve Bank of India (RBI) on Thursday.
In the 14th Financial Stability Report (FSR), the RBI stated that banks interest earnings and non-interest incomes were adversely affected, which led to a more than 60 percent drop in net profits for the banking sector.
Banks' return on assets (RoA) and return on equity (RoE) showed a substantial decline as compared to the previous year even as the public sector banks (PSBs) reported negative RoA.
The report states that India stood out in terms of higher economic growth although the banking sector was under stress primarily on account of asset quality concerns.
The report noted that the Non-Banking Financial Companies (NBFC) Sector registered a significantly higher credit growth during 2015-16 in comparison with credit growth of commercial banks.
"The asset quality of the NBFC sector has been deteriorating since 2012 although the NPAs of NBFCs remained relatively lower than that of the banking sector," the report states.
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The report stated that India's transition to the unified Goods and Service Tax (GST) regime and demonetisation could potentially transform its domestic economy, with some inconvenience to public and the momentary adverse impact on growth.
"While the spillover of global events to the domestic economy may continue to be significant, reduced policy uncertainty, along with tax and legislative reforms will help in realising the benefits from the strong macroeconomic fundamentals," it said.
It concluded that India's financial system remains stable although banks, particularly the public sector banks, continue to face significant levels of stress.
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