India’s banking system is now well-capitalised with NPA ratios down, thanks to a series of capital infusions, asset sales, balance sheet provisioning and normal nominal growth, chief economic advisor Anantha Nageswaran said on Friday.
Referring to the so-called “twin balance sheet problem” that started in the early years of the new millennium, he said while it let the conomy grow at high rates for a few years to 2008, also sowed the seeds of subsequent slowdown.
Corrective steps taken since may have slowed growth but made the financial system stronger. “(The capital adequacy ratio) of Indian banks is on a par with peers in many developed and developing countries. When current uncertainties dissipate, this is is going to stand us in good stead to expand balance sheets once again,” Nageswwaran said at the FE Modern BFSI Summit here.
“In the last three months non-food credit growth is running at double digits. While that’s a good sign, the bulk of the loans is going to micro and small enterprises and personal loan segment. Large enterprises naturally are still cautious and in the past they had other avenues of borrowing as well. Therefore, the state of the banking system is that the pandemic shock has been weathered by them. Some lagged impact might be in the pipeline, but provisioning should address that.”
