RBI says domestic financial system is stable with ongoing structural changes

The Reserve Bank of India Governor Shaktikanta Das commented on India’s Financial Stability report saying that:

• India’s financial system is stable, the banking sector shows signs of improvement although the global economic environment, financial sector trends pose challenges.
• The uptick in gross fixed capital formation together with the recent decline in Crude prices bode well for sustained growth going forward.
• Banking sector appears to be on course to recovery as a load of impaired assets recedes.
• Banking sector stress test results suggest further improvement in non-performing assets ratio, though its current level remains still high for comfort.
• Sept 2017-2018 analysis shows shrinking inter-bank market, increasing bank linkages with Asset management companies- Mutual funds for raising funds and with non-banking finance companies and housing finance companies for lending.
• Some of the resolutions under insolvency and bankruptcy code are lagging behind the envisaged timelines.
• Framework for oversight of financial conglomerates also requires closer attention.
• There is a need for some rebalancing as excessive credit growth, especially if funded with short-term financing, is not stability-enhancing.
• India’s domestic financial markets shifts to credit intermediation and interconnectivity between banks and non-banks call for greater vigilance.