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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. 

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