RBI has published its Financial Stability Report (FSR), which states that the health of Banking Sectors lending sector is struggling with a deteriorating asset quality which is a hidrance to their growth.
The report adds, that overall India’s financial system remains steady, however, the stress on the banking sector, particularly on the PSBs (Public Sector Banks) is seen to be steady and the risk is observed on a higher side. The reason attributed is a reduction in the asset quality, low profitability and liquidity. Also, the growth in business of PSU banks was seen to be moderate, as compared to their Private Sector counter parts. Further system level profit was also on a lower side.
Additing to the foe was the Gross Non-performing advance (GNPA), and the bad debts ratio was observed to have gone upto 9.1 per cent at the end of Sepember 2016 which was at 7.8% in March 2016. This has inturn raised the stressed advances ratio to 12.3 per cent which was 11.5 per cent before. The reason for the raise is attributed to the slide in the asset quality of large borrowers (payment dues ranging between 61 to 90 days duration), resulting in their additional contribution to the total bad debts. Also the increase in credit released to large borrowers was found to be less during the period under review.
The FSR also reports that the result of scrapping of high value notes possibly could transform the economy, though the exact impact on the economy is yet to be ascertained. Withdrawal of Specified Bank Notes (SBNs), due to demonetization, is expected changes in the Income Tax rules, are the factors, which would probably bring a major change from the current dependency of Indian Economy on Cash based transactions.
The report adds further the effect of demnoetization of 15.44 lakh crore of high value notes, has brought out an increase in the bank deposits, vis-à-vis a steep fall in currency in circulation. This has obviously resulted in a huge inflation rise, and a stop gap loss of speed in the growth of Real Gross Value of money.