Banks still 'robust' despite adverse conditions: RBI
26 December 2011
Bringing a little cheer to the generally depressed New Year environment, the Reserve Bank of India says banks are relatively safe from 'stress levels' they faced earlier.
The central bank's half-yearly financial stability report admits that overall macro-economic stress has been increasing due to heightened global risks, but adds that the current stress level ''seems to be still below the levels reached in the aftermath of the global crisis''.
Indian banks remain robust, though capital adequacy ratios have fallen and non-performing assets have increased, it says.
Stress tests show banks are reasonably resilient, though the capital adequacy of some banks could be adversely affected under severe credit risk stress.
Fiscal slippages during the period have added to the stress in the economy. A slowdown in economic growth, increase in the minimum support price for some crops, high oil prices, high inflation, an unfavourable market for disinvestment of government stakes, and high interest rates have all been making fiscal consolidation a challenging exercise, the report says.
Inflation, and expectations of it rising further, ''remain a primary concern at the current juncture with upside risks from structural imbalances in agriculture, infrastructure capacity bottlenecks, distorted administered prices of key commodities, exchange rate depreciation and widened fiscal deficit,'' the report says.