The RBI’s annual report on trends and progress in banking said that the banking system is resilient, enabling it to achieve healthy balance sheet growth on a broad-based acceleration in credit. The central bank said that its rate hikes are passed on to customers and will push deposit growth to meet demand. The RBI said that the consolidated balance sheet of banks grew in double digits for the first time in seven years.
The central bank added that the profitability of banks, measured in terms ofreturn on equity and assets, has improved to levels last seen in 2014-15.
At the same time, banks’ net interest margin at 2. 9% was below the threshold, which points to more risk-taking among banks.
While the Indian financial system is in a strong position, the RBI has asked lenders to remain prepared to reap emerging opportunities. It has asked them to focus on appropriate business models, adoption of new technology, sustainability, stability,consumer protection and financial inclusion.
Average loan size among banks also dipped, with accounts of over Rs 5-crore loans declining to 47. 8% in FY22 from 48. 4% in FY21.
“From its peak in 2017-18, the GNPA (gross non-performing asset) ratio of SCBs (scheduled commercial banks) has been declining sequentially to reach 5% in endSeptember 2022,” the RBI said. The reduction was mainly due to written-off loans in the case of public sector banks and the upgradation of loans for private banks. “The uncertainties characterising fast-changing macroeconomic scenario amid formidable global headwinds during 2022-23 can pose new challenges to the banking sector,” the report said. “If downside risks materialise, asset quality could be affected. ”