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Mumbai: The Reserve Bank of India (RBI) is monitoring the liquidity situation closely and will take necessary action as and when required, RBI deputy governor Shyamala Gopinath said on Tuesday. She was speaking at the India China Financial Conference 2009, organised by the Indian Banks’ Association.
“We are monitoring the liquidity situation closely and depending on the situation, will take action,” said Gopinath on asking if the central bank would drain the excess liquidity in the system through the use of open market operations. Talking about the low credit growth in the banking system, Gopinath said the lower growth may not be reflecting true demand conditions in the economy.
“Low credit growth is a concern for the RBI. One has to take into account other sources of finance for companies. We are seeing companies raise money through debt markets, bonds, commercial papers, external commercial loans and from the equity market,” she said.
Highlighting the strength of the Indian banking system amidst global financial crisis, she said it is noteworthy that notwithstanding the pressures of a slowdown, the net NPA to net advances ratio increased marginally to 1.1% as on March 2009, from 1% recorded in the year-ago period.
Significantly, gross NPA to gross advances ratio remained constant at 2.3 %. Thus, in terms of the two crucial indicators-capital and asset quality-the Indian banking sector has exhibited resilience amidst testing times.
It is noteworthy that contrary to the trend in some advanced economies, the leverage ratio (Tier-I capital to total assets ratio) in India has remained high, reflecting the strength of the Indian banking system. The growth rate of consolidated balance sheet of banks decelerated to 21.2% in 2008-09 from 25% a year ago. The growth rate was, however, higher than the nominal gross domestic product (GDP) (at current market prices) resulting in a higher ratio of assets of banks to GDP, she said.
On credit growth, Gopinath said, overall credit demand from the manufacturing sector slowed down reflecting a decline in commodity prices and drawdown of inventories. Two, corporates were able to access non-bank domestic sources of funds and external financing - which had almost dried up during the crisis - at lower costs. Three, unlike in the previous year, oil marketing companies reduced their borrowings from the banking sector as oil prices moderated. Four, a significant amount of bank finance has gone to the corporate sector through banks’ investment in units of mutual funds....
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