Economic Recovery Uneven Amidst Global Headwinds
High-frequency indicators during the first quarter of the current financial year suggested the Indian economy is recovering gradually and strengthening unevenly despite global headwinds, said the financial stability report (FSR) of the Reserve Bank of India (RBI). It noted that gross non-performing assets (GNPA) of scheduled commercial banks hit a six-year low, with demand for loans rising after a gap. “In the Indian economy, high-frequency indicators point to a gradual but unevenly strengthening recovery in the first quarter of 2022-23, in spite of headwinds from the geopolitical situation, elevated commodity prices, especially of crude oil, and volatile financial conditions, as global spillovers endeavour to unsettle the domestic financial markets with bouts of turbulence,” the report stated. Though corporate sales and profitability have risen, a durable commencement of the capex cycle remains elusive, it said. “The Indian economy is facing spillovers from global conditions but remains on the path of recovery,” the RBI’s report said. It noted the sharp rise in crude oil prices has adversely impacted domestic inflation and the rise in prices of petroleum products will have second-round effects on the prices of various goods and services. The RBI’s estimates show that a 10 per cent rise in the crude oil price above $100 per barrel may increase domestic inflation by 30 basis points (bps) and reduce GDP growth by 20 bps. The RBI had assumed crude oil at $105 a barrel while estimating GDP growth and inflation projections for the current financial year. Brent crude has been trading above $100 a barrel (regularly above $110 levels) for the past few months. Bank credit growth is picking up steadily and is already clocking double digits, the report said, while highlighting that gross NPA was now at a six-year low, with an improvement in the loan loss ratio. Macro-stress tests for credit risk reveal that SCBs are well-capitalized and all banks will be able to comply with the minimum capital requirements even under adverse stress scenarios. “Banks have also bolstered capital and liquidity positions, while their asset quality has improved. Non-banking financial companies (NBFCs) remain well capitalized,” it said. The banking sector indicators showed an improvement in efficiency and soundness indicators in the second half of the previous financial year. The improvement in the soundness indicator reflects enhanced capital buffers as the capital adequacy ratio rose by 18 bps to 16.7 per cent. Although the liquidity risk indicator deteriorated marginally during the second half of 2021-22 due to a decline in the liquidity coverage ratio (LCR) but remained well above the regulatory requirement of 100 per cent. Credit demand is also improving and growing at a double-digit rate after a long hiatus, and is now tracking nominal GDP growth, the report said.
Tags : Economic Recovery Uneven Global Headwinds gross non-performing assets (GNPA) Non-banking financial companies (NBFCs) the Reserve Bank of India (RBI) the financial stability report (FSR)