Going by the Reserve Bank of India’s (RBI) latest Financial Stability Report released on Thursday, banks are nice and stable. Bad loans as a proportion of overall loans are at multi-year lows, with their gross ratio standing at 2.8% in March 2024, which could decline further to 2.5% by March next.
Their capital buffers have been well over regulatory minimums, and tests show they would be adequate in stress scenarios. Plus, earnings have been robust. All this points to a banking system that is well-positioned to expand credit and drive India’s economy forward. That said, demand needs to rise evenly too. Bank loan growth in recent years has been mainly on account of the services sector and household consumption, with industrial credit lagging.
Further, increased personal lending may pose delinquency risks, as cautioned by the latest report, which notes an overall improvement in asset quality except in the case of personal loans. Broadly, however, the financial outlook looks good. As for global spillovers, RBI’s Systemic Risk Survey conducted in May among experts found that perceptions of such risks had receded sharply. With macro risks also seen as a bit lower, the report has good news overall.