Sanjay Malhotra, governor of the Reserve Bank of India (RBI), stated that despite the recent slowdown in GDP growth, the outlook for the Indian economy is expected to improve, with business and consumer confidence continuing to be high.
In the foreword of the December 2024 edition of RBI’s Financial Stability Report, which was released today, Malhotra stated that in spite of the uncertainties surrounding the global macrofinancial ethos as it develops, prospects for the Indian economy are anticipated to improve following the slowdown in the pace of economic activity in the first half of 2024–2025.
Baseline scenario
According to the Reserve Bank of India’s (RBI) Financial Stability Report, under the so-called baseline scenario, this crucial metric could increase from a 12-year low of 2.6 Per cent in September 2024 for 46 banks to 3 per cent by the end of March 2026.
Bad loan ratio and minimum capital requirement
It stated that under two distinct high-risk scenarios, the bad loan ratio might increase to 5 per cent and 5.3 per cent, respectively.
Even in unfavorable circumstances, no lender will fail to meet the 9 per cent minimum capital requirement, the RBI stated, even though the banks’ overall capital ratios may decline.
Every regulator in the financial sector contributes to the central bank’s twice-yearly Financial Stability Report.
commentremark since he assumed office
Malhotra is making his first economic remarks since assuming the role of RBI governor earlier this month.
‘Business and consumer confidence for the upcoming year is still high, and the investment outlook is more promising as companies enter 2025 with strong balance sheets and strong profitability,’ Malhotra further continued.
He said that in order to support a higher growth path for the Indian economy, the RBI is still focused on preserving systemic stability and, more generally, the stability of financial institutions.
He emhasised on stress tests
He emphasised that the results of stress tests show that, even in the face of unfavorable stress situations, the capital levels of the banking system and the non-banking financial companies (NBFCs) sector will continue to be significantly higher than the regulatory minimum.
Speaking about the global outlook, Malhotra noted that despite significant challenges brought on by unclear political and economic policies, raging conflicts, and a fragmenting international trade environment, the world economy is resilient.
Malhotra warned that although falling inflation improves prospects globally, the medium-term outlook is still difficult. Potential escalation of geopolitical conflicts, periodic financial market volatility, extreme weather events, and increasing debt were among the negative risks he identified.
