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Mumbai: India is on track to become a $5 trillion economy by 2027 and the third-largest by market exchange rates, and there are no signs of systemic stress building up at the current pace of credit growth, said Reserve Bank of India’s deputy governor Michael Patra while addressing a seminar hosted by National Bank of Cambodia on 18 September. The speech was uploaded on RBI’s website on Thursday.
\n \n \n \n“Our assessment, based on a menu of approaches, indicates that the current rates of credit expansion are not pointing to systemic stress building up. In the Indian context, warning lights flash at growth rates of 16-18%,\" he said.
\n \n \nAccording to the RBI’s latest data, banking system credit grew 19.8% from a year ago in the fortnight ended 25 August. Net interest margins are averaging around 3.8%, below the 5% threshold, Patra said.
\n \n \n \nBeyond that, it could have had implications for financial stability.The current episode of bank credit expansion is led by retail loans and since these are being distributed across a wider borrower base, they mitigate the accumulation of systemic risk, he added. “We are, however, watchful as herding by banks in retail loans space may lead to potential cascades across the system if defaults do occur,\" he said.
\n \n \nPatra said if a shock in the form of a 250 basis points parallel upward shift in yield curve is applied, the mark-to-market impact on the held to maturity portfolio will reduce system level capital ratio from 17.1% in March to 13.7%, which is still above the regulatory requirements.
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