Indian banks ready to support world’s fastest growing economy, government says


India’s banking sector is well capitalized and bad debts in the system have declined, allowing lenders to support investment as the South Asian nation could outpace its peers in economic growth over the next three years.

According to the government’s economic survey presented to Parliament on January 31, the gross non-performing loan ratio of India’s regular commercial banks fell to 6.9% at the end of September 2021, from 7.5% a year earlier.The capital-to-risk-weighted assets ratio, or CRAR, rose to 16.54% from 15.84% over the same period, helped by an improvement in public banks and their private sector counterparts, according to the report.

“A strong and healthy banking sector stands ready to adequately support private investment. Expected increases in private consumption levels will boost capacity utilization, thereby fueling private investment activity,” the report said.

The government expects India’s economy to grow by 9.2% in the fiscal year ending March 31, reversing a 7.3% contraction recorded in the previous fiscal year. The country’s GDP is expected to grow by 8% to 8.5% in the next fiscal year which begins April 1, according to the report, adding that the government’s projections were in line with those of the World Bank and the Asian Development Bank. development. This could make India the fastest growing economy in the world over a three-year period.

Rising optimism

A survey conducted by the The Reserve Bank of India indicated growing optimism among investors and an expansion in production over the coming quarters, according to the report.

The improved CRAR levels of state-owned banks was due to the government injecting capital and raising funds from them in the markets, while private sector lenders drew capital from market sources, said the government. Based on their capital position as of September 30, 2021, all banks maintained a capital conservation buffer of more than 2.5%, he said.

State-owned banks’ return on assets and return on equity turned positive in June 2020, after negative profitability ratios in the previous four years, he said. “The economic shock of the pandemic has been weathered well so far by the commercial banking system, although some lagged impact is still ongoing.”

The government said the current financial year had been “exceptional” for the country’s capital markets, with more than 890 billion rupees raised through 75 IPOs from April to November 2021, the highest for all years of the last decade. These included the $2.47 billion raised by One97 Communications Ltd. in India’s biggest ever IPO.

Shadow banking credit growth, however, remained sluggish. Total credit of non-banking financial services companies increased slightly to reach 28.03 trillion rupees in September 2021 from 27.53 trillion rupees in March 2021, according to the report.

As of January 28, US$1 was equivalent to 75.01 Indian rupees.


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