India’s economy experiences a gradual recovery in the first quarter; War in Europe casts shadow over outlook: RBI
The Reserve Bank of India (RBI) said on Thursday that India’s economy had witnessed a gradual but uneven recovery in the June quarter of 2022. It added that business sales and profitability have also increased, while a sustainable start of the capital expenditure (capex) cycle remains elusive.
“In the Indian economy, high-frequency indicators point to a gradual but unevenly strengthened recovery in the first quarter of 2022-23, despite geopolitical headwinds, high commodity prices, especially crude oil, and volatile financial conditions, as the global fallout works to destabilize domestic financial markets with bouts of turbulence,” the RBI said in its “Financial Stability Report, June 2022” released on Thursday.
He added that market risks were increasing as periods of volatility unleashed due to foreign portfolio investment outflows and the sharp appreciation of the US dollar. Bank credit growth is accelerating steadily, already posting double-digit figures. Banks have also strengthened their capital and liquidity positions while asset quality has improved. Non-bank financial corporations (NBFCs) remain well capitalized.
The report states: “The Indian economy appears to have weathered the third wave of the pandemic associated with the Omicron variant, although the war in Ukraine now casts a shadow over the outlook. While the release of end-May 2022 data from the Office for National Statistics (ONS) indicates that real GDP and major supply-side categories in 2021-22 are above their pre-pandemic levels of 2019 -20, high frequency indicators present a mixed picture.
The RBI added that urban demand appears to be on a stronger footing than rural demand, although the outlook for the latter is improving with prospects for a normal southwest monsoon predicted by the Indian Meteorological Department (IMD). ) and Skymet.
The central bank said: “Regular commercial banks (SCBs) have maintained strong capital positions, with a capital-to-risk-weighted asset ratio (CRAR) and a tier-1 common equity ratio (CET- 1) SCBs as high as 16.7% and 13.6% cent, respectively, in March 2022, and improving returns on assets (RoA) and returns on equity (RoE).
The RBI also said that SCB’s Gross Non-Performing Assets (GNPA) ratio fell to 5.9%, its lowest level in six years, and the Net Non-Performing Assets (NNPA) ratio fell to 1 .7% in March 2022. The provision coverage ratio (PCR) increased to 70.9% in March 2022 from 67.6% in March 2021.
“Macro stress tests for credit risk reveal that SCBs are well capitalized and that all banks would be able to meet minimum capital requirements even under adverse stress scenarios. The CRAR of Urban Cooperative Banks (UCBs) increased to 15.8% in March 2022 while that of NBFCs stood at 26.9%,” the report states.
Regarding the assessment of risks in the system, the report states that in the latest Systemic Risk Survey (SRS) conducted by the RBI in May 2022, global fallout and financial market volatility moved to the risk category” raised”.
“Global growth uncertainty, commodity price movements, geopolitical conditions and monetary tightening in emerging countries were seen as the main drivers of global risks. Macroeconomic, institutional and general risks were seen as “medium Nearly eighty percent of respondents believed that the outlook for the Indian banking sector is expected to improve or remain unchanged over a one-year horizon,” the RBI added.
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