As banks turn more cautious, the rate of India’s economic recovery declines

The Indian banking sector is facing long-term challenges like frauds alongside an ailing shadow banking sector.

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As reported by IndiaToday, after the devastating second wave of the COVID-19 pandemic, the rate of India’s economic recovery has begun to decline significantly.

Moreover, banks have turned to be more cautious due to COVID-19’s second wave in the country along with tightened lending even when companies and individuals are seeking more credit.

As per Reserve Bank of India (RBI) data, in the past few months, loans to companies and individuals have been growing at a lowered rate of 5.5 to 6 percent, considered to be half the rate i.e. about 12 percent seen before the coronavirus pandemic.

India’s biggest lender, State Bank of India (SBI) aimed at almost doubling its credit growth rate to 10 percent in FY22. Nevertheless, due to the ongoing situation, SBI is willing to miss the goal.

According to Bloomberg News, the Chairman of SBI, Dinesh Khara has called the situation “very fragile” after reporting earnings for the fiscal year ended in March. He added that the bank would not compromise on asset quality to achieve targets. SS Mudra, a former deputy RBI governor stated, “Credit is a necessary and probably most important ingredient for economic growth.”

In view of the fact that an increased number of defaults have been recorded after the pandemic, not only SBI but also private and public lenders have decided to be more precautionary.

The RBI is expecting the bad ratio of banks to rise to 9.8 percent by the end of this financial year from 7.48 percent previously.

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