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<\/p>\nIndia’s bank credit remains resilient and is showing no signs of systematic risk, Reserve Bank of India (RBI) Deputy Governor Michael Patra said on Monday.<\/p>\n
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A copy of the speech was uploaded on the RBI website on Thursday.<\/p>\n
“Bank credit is monitored as a lead indicator of overheating. Our assessment, based on a menu of approaches, indicates that current rates of credit expansion are not pointing to systemic stress building up.<\/p>\n
“Illustratively, the credit gap – the difference between the credit to GDP ratio and its trend – is currently negative,” said Patra, while delivering a speech in Cambodia.<\/p>\n
He further said that macro stress tests for credit risk indicate that all banks in India are expected to meet the minimum capital requirements, even when subjected to severe stress scenarios.<\/p>\n
The deputy governor also said that the ongoing surge in bank credit expansion is primarily driven by retail loans.<\/p>\n
“We are, however, watchful as herding by banks in the retail loan space might lead to potential cascades across the system if defaults do occur,” he said.<\/p>\n
Patra also said that the net interest margins (NIMs) within the banking system currently stand at approximately 3.8 per cent, which is lower than the estimated threshold of 5 per cent, beyond which there could be potential implications for financial stability.<\/p>\n
“NIMs in the banking system are averaging around 3.8 per cent, which is ruling below the estimated threshold of 5 per cent beyond which it may have implications for financial stability due to loosening of leverage constraints and adverse selection.<\/p>\n
“Nonetheless, eternal vigilance is the price of financial stability,” he said.<\/p>\n
Patra said that India will be a $5 trillion economy by 2027, securing its position as the world’s third-largest economy even when measured by market exchange rate.<\/p>\n