Indian banks' bad loan ratio may improve further by March 2023 - report

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A man walks behind the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, April 8, 2022. REUTERS/Francis Mascarenhas

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MUMBAI, June 30 (Reuters) - The proportion of Indian bank loans classified as "non performing" may shrink further from March's six-year low, helped by improved growth in lending, according to a report published by the Reserve Bank of India on Thursday.

The Financial Stability Report includes contributions from all financial sector regulators in the country and is published bi-annually by the RBI on its website.

Stress tests indicate that the gross non-performing asset (GNPA) ratio of all scheduled commercial banks "may improve from 5.9% in March 2022 to 5.3% by March 2023 under the baseline scenario, driven by higher expected bank credit growth and a declining trend in the stock of GNPAs, among other factors," the report said.

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Banks and non-banking institutions have sufficient capital buffers to withstand shocks and would be able to comply with minimum capital requirements even under extreme stress scenarios, according to the report.

"The financial system is well-capitalised and returning to profitability," Governor Shaktikanta Das said in the foreword.

The central bank again highlighted the risks associated with big technology companies with the rise of fintech.

"BigTech firms and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour," the report stated.

The RBI also underscored the need for a drastic approach by national authorities as the threat from the crypto ecosystem increases.

Overall, the financial stability risks to the Indian economy are skewed towards global spillovers and geopolitical tensions, Das wrote.

"Nevertheless, the Indian financial system exhibits underlying robustness and resilience to withstand these shocks," he added.

The report said high inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring.

India's retail inflation eased marginally in May after touching an eight-year high of 7.79% in April, but remained above the central bank's tolerance band for a fifth month in a row. read more

"The innate strength and resilience of our macro fundamentals is catalysing a steady recovery," Das said.

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Editing by Raissa Kasolowsky and Jan Harvey

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