Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday told bankers to remain watchful of the evolving macroeconomic situation, including global spillovers, and take mitigating measures proactively so that the potential impact on their balance sheets is minimised and financial stability risks are contained.
Das met managing directors and chief executive officers of public sector banks and select private banks ahead of the monetary policy decision, the RBI said in a statement. The monetary policy committee (MPC) is scheduled to meet between December 5-7.
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In the post-pandemic period, Das on several occasions listed the war in Ukraine and globalised inflation as shocks to the domestic economy. The increase in interest rates by the US Federal Reserve has led to capital outflows, currency depreciation and tightening of external financial conditions. The recent inflation and producer price index data from the US suggest that the central bank may ease up on its hawkish stance.
Despite challenges, the Indian banking sector has remained resilient and continued to improve in various performance parameters, Das said.
Other issues such as lagging growth in deposits compared to credit growth, asset quality, investments in technology, adoption of new-age technology solutions and functioning of digital banking units were also discussed.
The banking sector credit grew by close to 18% y-o-y in the fortnight ended October 21, while deposit growth was at 9.5% during the period. While some banks are using excess liquidity to support the credit growth for now, they are also increasing deposit rates. With surplus liquidity in the banking system normalising, lenders may now have to raise deposit rates at a faster pace, Subha Sri Narayanan, director at Crisil Ratings said.
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On asset quality front, the banks across the board have seen an improvement in the second quarter of the financial year. The RBI estimates the gross non-performing asset (NPA) ratio levels of the banking system may improve to 5.3% from 5.9% in the baseline scenario, as per its financial stability report in June, while gross NPAs may deteriorate to as high as 8.3% in case of severe stress scenario.