The Reserve Bank of India (RBI) on Thursday said that the Indian economy has shown a gradual but uneven recovery in the June 2022 quarter. It added that corporate sales and profitability have also risen, while a sustainable start to the capital expenditure (capex) cycle remains elusive.
“In the Indian economy, high-frequency indicators point to a gradual but disproportionate strengthening in the first quarter of 2022-23, contrasted by the geopolitical situation, particularly elevated crude oil prices and volatile financial conditions. “Global spillovers tend to destabilize domestic financial markets with volatility,” RBI said in its ‘Financial Stability Report, June 2022’, released on Thursday.
It added that market risks are rising as volatility spells have been unleashed by foreign portfolio investment outflows and a sharp appreciation of the US dollar. Bank credit growth is growing rapidly, which is already in double digits. Banks have also strengthened their capital and liquidity position while asset quality has improved. Non-Banking Financial Companies (NBFCs) are well capitalized.
The report said, “The Indian economy appears to have faced the third wave of the pandemic linked to the Omicron version, although the war in Ukraine is now casting a long shadow over the outlook. While the National Statistical Office’s (NSO) end-May 2022 figures point towards real GDP and key supply side categories to exceed their pre-pandemic 2019-20 levels in 2021-22, high frequency indicators paint a mixed picture. present. ,
RBI said urban demand appears to be at a stronger level than rural demand, although the outlook for the latter is bright with the prospects of a normal southwest monsoon predicted by the Indian Meteorological Department (IMD) and Skymet.
“Scheduled commercial banks (SCBs) maintained strong capital position, with capital to risk weighted assets ratio (CRAR) and common equity tier 1 (CET-1) ratio of SCBs as high as 16.7 per cent and 13.6 per cent,” the central bank said. cents in March 2022, and improving return on assets (ROA) and return on equity (ROE) respectively.
The RBI also said that the gross non-performing assets (GNPA) ratio of SCBs fell to a six-year low of 5.9 per cent and net non-performing assets (NNPA) ratio at 1.7 per cent in March 2022. The provision coverage ratio (PCR) increased to 70.9 per cent in March 2022 from 67.6 per cent in March 2021.
“The macro-stress test for credit risk shows that SCBs are well capitalized and all banks will be able to adhere to the minimum capital requirements even in adverse stress scenarios. The CRAR of urban co-operative banks (UCBs) increased to 15.8 per cent in March 2022, while that of NBFCs stood at 26.9 per cent.
On the assessment of risks in the system, the report said that in the latest Systemic Risk Survey (SRS) conducted by RBI in May 2022, global spillovers and financial market volatility moved into the ‘high’ risk category.
“Global growth uncertainty, volatility in commodity prices, geopolitical conditions and monetary tightening in AEs were considered to be key drivers of global risks. Macroeconomic, institutional and general risks were considered ‘moderate’. Nearly eighty per cent of the respondents decided that the prospects of the Indian banking sector are likely to improve or remain unchanged over the one-year horizon,” RBI said.
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