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The country’s GDP slowed to a six-year low of 4.5 per cent in the second quarter of FY20, forcing the RBI to slash its growth forecast by 240 basis points to 5 per cent for the fiscal in its December monetary policy review.
“India’s financial system remains stable notwithstanding weakening domestic growth,” the central bank said in the Financial Stability Report.
The report said all major risk groups such as “global risks, risk perceptions on macroeconomic conditions, financial market risks and institutional positions” were perceived as medium risks affecting the financial system.
However, the perception of risks on various fronts like domestic growth, fiscal, corporate sector and banks‘ asset quality increased between April and October 2019, it said.
Key highlights of the Financial Stability Report:
- Scheduled commercial banks’ credit growth remained subdued at 8.7 per cent year-on-year (YoY) in September 2019.
- Banks’ capital adequacy ratio improved significantly after the recapitalisation of public sector banks (PSBs) by the government.
- Continuing the trend witnessed in the previous half-year, the banking sector has shown signs of stabilisation.
- Performance of public sector banks needs to improve, they need efforts to build buffers against disproportionate operational risk losses.
- Private sector banking space also needs to focus on aspects of corporate governance.
- Non-banking financial intermediation space continues to show signs of restructuring of their underlying business models.
- While credit markets are becoming more competitive following recapitalisation of PSBs, market funding for nbfcs getting more discerning.
- Insolvency and Bankruptcy Board of India (ibbi) continues to make steady progress in the resolution of stressed assets.
- India’s financial system remains stable notwithstanding weakening domestic growth.
- The performance of scheduled urban cooperative banks (SUCBs) deteriorated significantly between March and September.
- With global growth and trade projected to slow down further, India’s exports could face challenging demand conditions going forward.
- While government’s fiscal deficit numbers improved, revenue shortfall amidst weaker private consumption, investment could challenge fiscal parameter.
- Foreign portfolio investors (FPIs) invested to the tune of $7.8 billion in the Indian securities market during April-October 2019.
- Emerging trends in consumer credit continue to show a challenging environment for NBFCs.
- Failure of any NBFC or HFC will act as a solvency shock to its lenders.
- Loan-related frauds continued to dominate in aggregate constituting 90% per of all frauds reported in FY2018-19 by value.
(With Inputs from Reuters)
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