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External spillovers likely to hit India's financial system: RBI report

2 min read

RBI's Financial Stability Report Overview

The Reserve Bank of India's (RBI) Financial Stability Report highlights both resilience and concerns in India's financial system amidst global challenges.

Impact of Global Factors

  • Domestic demand insulates India's growth from global issues, but the financial system could be affected by external spillovers.
  • Global trade disputes and geopolitical tensions might negatively impact domestic growth and bank credit demand.
  • Increased investor risk aversion could trigger corrections in domestic equity markets.

Financial System Stress

  • There's a slight increase in the financial system stress indicator due to global spillovers.
  • A 100 basis points global growth slowdown could reduce India's growth by 30 bps.

Economic Resilience

  • RBI projects a 6.5% GDP growth for the current year, maintaining last year's growth rate.
  • The financial system shows resilience due to healthy balance sheets of banks and non-banks.

Inflation and Banking Sector

  • Food inflation outlook remains favorable; low risk of imported inflation due to expected global growth slowdown.
  • Geopolitical tensions in the Middle East increase uncertainty, but headline inflation might undershoot the target.
  • Scheduled commercial banks show improvement in asset quality with GNPA and NNPA ratios at multi-decadal lows.

Stress Tests and Capital Adequacy

  • Stress tests indicate that gross NPA ratios might rise under different scenarios, but capital adequacy remains above the regulatory minimum of 9%.

External Sector Resilience

  • The external sector significantly contributes to India's macroeconomic and financial stability.
  • Current account deficit (CAD) at 0.6% of GDP for 2024-25 is considered manageable.
  • Tags :
  • Financial Stability Report
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