Indian Bank Bad Loans At All-Time Low, Says RBI Governor Shaktikanta Das

Bank bad loans have fallen to all-time lows while provisions and capital levels have risen, said RBI Governor Shaktikanta Das.
File photo of RBI Governor Shaktikanta Das.
File photo of RBI Governor Shaktikanta Das.

The health of the Indian banking sector has improved substantially with bad loans at a record low, provision coverage high, and capital well above regulatory requirements, said Reserve Bank of India's Governor Shaktikanta Das.

The gross non-performing assets ratio of the banking sector is at an all-time low of 6.5%, Das said, at an event organised by the Confederation of Indian Industry.

In its Financial Stability Report in December, the RBI had said that the gross NPA ratio has fallen to 6.9%, the lowest in six years. Since then, bad loans have fallen further.

To be sure, the drop in bad loans has been supported by regulatory dispensations, including one-time restructuring permitted due to the Covid-19 crisis. Banks have also written off bad loans, which helps bring down gross non-performing assets.

Das added that banks have also raised adequate capital and set aside higher provisions against stressed assets.

The capital adequacy level of the banking sector is close to 16% and the provision coverage ratio is at 69%, Das said.

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Will Ensure Adequate Liquidity

Commenting on steps taken by the RBI to tide over the Covid-19 crisis, Das said the central bank provided close to Rs 17 lakh crore in liquidity support via various facilities.

While close to Rs 5 lakh crore in liquidity has since been reversed, the Governor assured the market of adequate liquidity support to meet the needs of the economy.

Both liquidity injection and withdrawal will be handled smoothly, Das said, adding that concerns that the central bank is behind the curve in withdrawing crisis-time support measures are not warranted.

Indian Central Bank Chief Vows Ample Liquidity to Aid Economy

Unimaginable Uncertainty

While the third wave of Covid-19 infections has abated, uncertainty has built up again due to the Russia-Ukraine crisis and the wind down of monetary accommodation by global central banks. Higher oil prices are adding to the uncertainty and are likely to widen India's current account deficit.

''We are comfortably placed to deal with any challenges with regard to financing the CAD, and the RBI stands committed to deal with any challenges on this front,'' he said.

India's high level of forex reserves will help the economy withstand volatility brought on by global developments, he added.

Forex Reserves Well-Dispersed

Responding to a question on diversification of forex reserves, Das said that India's foreign currency reserves are '"well-dispersed". "Nearly six months ago, India took a decision to diversify its reserves further into other currencies," Das said, without disclosing details. India does not disclose the composition of its reserves.

India's gold reserves are also well-dispersed, Das said.

Amid the Russia-Ukraine conflict, the U.S. has decided to freeze a part of Russia's forex reserves held in dollars. This has prompted concerns about the adequate diversification of reserves, particularly in the case of emerging economies.

Growth And Inflation Forecasts

According to Das, the growth impact of the Ukraine crisis should be minimal for India. Both growth and inflation forecasts will be revisited when the RBI review monetary policy in April.

However, the Governor said India does not face the risk of stagflation. Unlike developed countries, inflation in India is close to the targeted levels. "I don't see a case where inflation in India will stay above 6% for a long period of time, Das said.

India's inflation target is set at 4 (+/-2)%.

The RBI remains growth-supportive but it is also conscious of its inflation mandate, said Das. Premature tightening to deal with supply-side driven inflation would have hurt demand conditions, he added.

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