MUMBAI: The financial system is resilient and stable, despite external risks with all key macro indicators returning into the positive territory. While banks are exhibiting strong profitability and healthier asset quality as non-performing assets have fallen to a 13-year low as of September, non-banks have healthy capital buffers and good earnings, and insurance companies maintain a robust solvency ratio, says the financial stability report.
The report, released by the Reserve Bank on Monday, reflects on the assessment of the sub-committee of the Financial Stability and Development Council (FSDC) and highlights the robustness of our financial system amid global vulnerabilities.
"The economy is exhibiting resilience and stability, and the gross domestic product is projected to grow at 6.6 per cent this fiscal, aided by a revival in rural consumption, a pickup in government expenditures and investment, and strong services exports," the report said.
"The soundness of banks has been bolstered by strong profitability, declining non-performing assets and adequate capital and liquidity buffers. Return on assets (RoA) and return on equity (RoE) are at decadal highs, while the gross non-performing asset (GNPA) ratio has fallen to a multi-year low,” the report said.
It also said macro-stress tests demonstrate that most banks have adequate capital buffers relative to the regulatory minimum threshold even under adverse stress scenarios. Stress tests also validate the resilience of mutual funds and clearing corporations.
On the economy, the report says during the first half of the current fiscal, real GDP growth moderated to 6 per cent from 8.2 per cent and 8.1 per cent in H1 and H2 of FY24, respectively.
“Despite this recent deceleration, structural growth drivers remain intact. Real GDP growth is expected to recover in Q3 and Q4 supported by pick up in domestic drivers, mainly public consumption and investment, strong services exports and easy financial conditions,” the RBI said.
It can be noted that after the Q2 shocker where growth slumped to a seven-quarter low of 5.4 per cent, the RBI was forced to scale down its forecast by 60 bps to 6.6 per cent in the December policy review.
On inflation, the report says going forward, the disinflationary effect of a bumper kharif harvest and the rabi crop prospects are expected to soften prices of foodgrains, which have been in double digits for months now. Over CPI printed in at 6.21 per cent in October but slipped to 5.6 in November and is likely to fall further this month and the next three months. On the flipside, the rising frequency of extreme weather events continues to pose risks for food inflation dynamics, the report notes.
Persisting geopolitical conflicts and geo-economics fragmentation can also impose upside pressures on global supply chain and commodity prices.