How Indian Banks are performing? Less stress and Healthier!

The Reserve Bank of India (RBI) released its 25th Financial Stability Report (FSR) on June 28, 2023. The report assessed the state of the Indian financial system and identified the key risks to its stability.

The report found that the Indian financial system is broadly stable, but there are some risks that need to be monitored. These risks include:

• The rising debt levels of the corporate sector and some retail sector like credit cards which are unsecured.
• The increasing interconnectedness of the financial system.
• The potential for a sharp correction in asset prices due to global recession in the coming months

The report also noted that the RBI is taking steps to mitigate these risks. These steps include:

• Raising the capital requirements for banks.
• Strengthening the regulation of non-banking financial companies.
• Increasing the resilience of the financial system to shocks by doing Stress tests at periodic intervals.

Here are some of the key highlights of the report:

• The gross non-performing assets (NPAs) of banks declined to 3.9% in March 2023, from 11.5% in March 2018.
• The report further said the banking system profitability improved with return on assets (ROA) increasing to 1.1 percent in 2023 from a low of - 0.2 percent in 2018. This, in turn, helped the capital to risk-weighted assets ratio (CRAR) 35 to reach a record high of 17.1 percent in 2023..
• The liquidity in the financial system is adequate.Bank deposits have grown by 10% whereas Credit has grown by 15%,but due to adequate deposits accretion and various other measures by RBI,the liquidity is sufficient in the system to support growth and bring down inflation.
• The financial system is resilient to shock

• However it is to be noted that the RBI has taken a number of steps to improve asset quality in the banking system over the years, including:

  • Raising the provisioning requirements for banks and provisioning level has touched 70% by March 2023 unlike in the past.
  • Strengthening the asset classification framework.
  • Introducing a new resolution framework for stressed assets.
  .

The report concluded that the Indian financial system is well-positioned to withstand shocks, but there is a need to remain vigilant and take steps to monitor risks. 

Economy's health is good but the common man misses "the feel-good" factor

                               

GDP growth projections by Global Institutions of Advanced Economies and Emerging Market Economies including India are given in Table 1 herein below:

Table 1:

The above chart indicates that the GDP growth of Indian economy in Calendar year 2023 has  been revised upwards by OECD from 5.7% to 6% and downwards by World Bank from 6.6% in Jan 2023 to 6.3% in June 2023. The convergence is between 6-6.3% with RBI and Department of Economic Affairs of Ministry of Finance are projecting 6.5% growth in FY2024 with risks evenly balanced.IMF is projecting at below 6% .However all these forecasts are showing slowdown from the growth attained in the last two fiscal years at 9.1% in FY22 and 7.2% in FY23.

 Table 2:Key Fiscal Indicators (as a  per cent of GDP)

  

Indicator	2021-22	2022-23			2023-24
	Actuals	BE	RE	PA	BE
1. Fiscal Deficit	6.75	6.44	6.43	6.36	5.92
2. Revenue Deficit	4.39	3.84	4.07	3.92	2.88
3. Primary Deficit	3.32	2.79	2.98	2.95	2.34
4. Gross Tax Revenue	11.54	10.69	11.14	11.21	11.14
5. Non-Tax Revenue	1.56	1.05	0.96	1.05	1.00
5. Revenue Expenditure	13.64	12.38	12.67	12.67	11.61
6. Capital Expenditure	2.53	2.91	2.67	2.70	3.32
(i) Capital Outlay	2.28	2.37	2.27	2.28	2.77

Notes: 1. GDP used for 2022-23 budget estimates (BE) and revised estimates (RE) is as per the Union Budget 2022-23 and 2023-24, respectively.

2. For 2022-23 (PA), the GDP used is the provisional estimates (PE), released by the Ministry of Statistics and Programme Implementation (MoSPI) on May 31, 2023.

Sources: Union Budget Documents; and Controller General of Accounts (CGA).

Table 3: Key Fiscal Indicators (as a per cent of GDP/GSDP)

Indicator	2021-22 Actuals	2022-23			2023-24 BE
		BE	RE	PA
Gross Fiscal Deficit	2.8	3.4	3.1	2.8	3.2
Revenue Deficit	0.4	0.3	0.5	0.3	0.2
Primary Deficit	1.0	1.6	1.4	1.2	1.4
Tax Revenue	10.0	10.1	9.3	9.8	10.6
Non-Tax Revenue	1.1	1.3	1.0	1.0	1.2
Revenue Expenditure	14.2	15.3	13.7	13.5	14.6
Capital Expenditure	2.5	3.2	2.7	2.5	3.2
i) Capital Outlay	2.3	2.9	2.4	2.2	2.9

Note: Data for 2021-22, 2022-23 (BE) and 2022-23(PA) pertain to 31 States/ UTs and for 2022- 23 (RE) and 2023-24 (BE) pertain to 29 States/UTs. Data for 2023-24(BE) is taken as a per cent of GSDP.

Source: Budget documents of the states; Comptroller and Auditor General of India and RBI.

 

Table 2 and Table 3 indicate the fiscal health of Indian Economy as per Central Govt

and State Governments perspective. Fiscal Deficit is getting reined in at the Central 

and the States level also. The combined Fiscal Deficit is at 6.36%+2.8% i.e 9.16% .

The trajectory of this combined Fiscal deficit is showing a downward slope and this 

is important for the Economy to grow steadily with the percolation of its benefits 

to large sections of the population.

More than this, the inflation trajectory should also come down swiftly since Inflation 

is also an additional tax burden in the hands of the common man. 

Considering the Revenue buoyancy of the Central Govt.it should look at avenues to 

bring down the Excise burden on the Fossil Fuels and domestic LPG as a relief to the 

common man.The cascading effects of fossil fuel price increases will have to be

tamed by this step

GOI must also look at leaving more money in the hands of common man to prime

up Private consumption which contributes to the bulk of our GDP growth i.e almost 

55-60% of GDP.Only then the virtuous cycle of consumption and private investments

kicking in with a fervour can happen in the Economy.

Despite all the chest thumping by the Govt still 'the feel-good factor" is lacking in 

the economy.

(Courtesy:RBI'smonthly bulletin June 2023)