The Reserve Bank of India (RBI) recently released its 27th Financial Stability Report (FSR), presenting an assessment of the Indian financial system’s resilience and risks. Despite global uncertainties and challenges, the Indian economy continues to display robust growth supported by strong macroeconomic fundamentals. The banking sector, in particular, has performed well, outshining the turmoil experienced by advanced economies.
Robust Deposit Growth: Exceeding 10% Threshold Aggregate deposit growth, which had experienced a slight moderation in the previous two years, regained momentum and crossed the 10% mark, reaching 11.8% as of June 2, 2023. The primary driver of this growth was private-sector banks, as term deposits attracted healthy accretions in the rising interest rate cycle. Consequently, current account and savings account (CASA) deposits experienced a relative decline.
Profit Margin Boost: Higher Net Interest Margin and Strong PAT Growth During the period of 2022-23, banks experienced a 30 basis points improvement in net interest margin (NIM), as the transmission of monetary policy tightening to deposit rates lagged behind the pass-through to lending rates. This resulted in a healthy 38.4% year-on-year growth in bank’s profit after tax (PAT), driven by a significant increase in net interest income (NII) and reduced provisions.
The Reserve Bank of India (RBI) has released the 27th issue of the Financial Stability Report (FSR), providing an assessment of risks to financial stability and the resilience of the Indian financial system. Despite global uncertainties, the Indian economy and domestic financial system exhibit strength, supported by robust macroeconomic fundamentals.
Heightened uncertainty persists in the global economy due to fragility in certain banking systems, geopolitical tensions, and moderating but elevated inflation.
Amidst global headwinds, the Indian economy demonstrates resilience, benefiting from continued growth momentum, moderating inflation, a narrowing current account deficit, rising foreign exchange reserves, ongoing fiscal consolidation, and a robust financial system.
The healthy balance sheets of banks and corporates are fostering a new credit and investment cycle, brightening the prospects of sustained growth for the Indian economy.
Scheduled commercial banks (SCBs) witnessed historical highs in capital to risk-weighted assets ratio (CRAR) and common equity tier 1 (CET1) ratio. As of March 2023, the CRAR stood at 17.1%, while the CET1 ratio reached 13.9%.
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