India central bank chief says lowering inflation top priority for South Asia
Taming inflation is the top priority for South Asian countries as risks to growth and investment outlook could rise if price pressures persist at high levels, Reserve Bank of India (RBI) governor Shaktikanta Das said.
Speaking at an event organised by the International Monetary Fund (IMF), Das said policy challenges for the region have accentuated due to the Covid-19 pandemic and the war in Ukraine.
Earlier, IMF Deputy Managing Director Antoinette Sayeh said India is in a relative "bright spot" in the world economy, but needed to leverage its existing strength in services exports and extend it to job-rich manufacturing exports.
Intra-regional trade in South Asia is only at one-fifth of its potential, Das said, adding that boosting it can enhance growth and employment opportunities for the nations in the aftermath of the pandemic. India has also been trying to promote rupeebased settlement of trade and Das said RBI has been in talks with some countries in the region to facilitate it.
Earlier, the central bank said in a report last week that India's banking sector remained resilient in 2021/22 and lenders may have to raise deposit rates more to meet a surge in credit demand. The Reserve Bank of India (RBI) has raised rates aggressively last year to tame inflation. While banks have swiftly transmitted the hikes to their lending rates, deposit rates have been laggards for most.
"During 2021-22, as credit growth picked up and deposit growth moderated, the incremental credit-deposit (CD) ratio reached a four-year high," the RBI said in its report on Trends and Progress of Banking. Loans of Indian banks rose 17.5% in the two weeks to Dec. 2 from a year earlier, while deposits rose 9.9%, the latest data from the RBI showed earlier in the month.
The consolidated balance sheet of Indian banks notched double-digit growth in 2021/22 after a gap of seven years, with credit growth accelerating to a ten-year high at the end of the first half of fiscal 2023, the report added. The surge in credit growth was largely led by private sector lenders.
Indian banks have reported an improvement in performance and a decline in bad loans following the COVID-19 pandemic. Now that the economy is recovering, credit offtake has improved significantly.
The RBI's rate-setting Monetary
Policy Committee has raised interest rates by a total of 225 basis points (bps) over five meetings since May last year. The transmission repo rate increase during May-October to deposit rates is likely to provide a "fillip" to deposit growth rates, the report said.
In terms of asset quality, the gross non-performing assets (NPA) ratio of banks has been declining sequentially to reach 5% at end-September 2022, according to the report.
This decrease, the report said, was led by lower slippages as well as a reduction in outstanding bad loans through recoveries, upgrades and write-offs.
However, the number of fraud cases reported by private banks outnumbered those by state-run peers for the second consecutive year in 202122, according to the report.