On Thursday the Reserve Bank released its new Financial Stability Report. It concludes India’s banking industry can cope with credit risk shocks. RBI’s stress test found that when bad debts were increased to 150% of their current state the system was “reasonably poised” to deal with it. Despite the good news, RBI warned that bad debt was now the biggest problem the banking system faced. According to Reserve Bank figures, the system’s gross non-performing assets ratio increased drastically from 2.3% at the end of March to 2.8% at the end of September.
And RBI has also warned that India’s current account deficit is likely to widen. It says rising oil prices and higher imports of bullion and electronics are among the culprits. The current account deficit grew to $14.1 billion in the first quarter. By the end of the fiscal it’s expected to reach $54 billion.
RBI governor D Subbarao has cut down his expectations for India’s growth. Subbarao said the economy would probably grow less than 7.6% this fiscal. He added that RBI’s inflation target of 7% by March-end was unlikely to be met, thanks largely to the weak rupee, rising imports and global economic conditions.
Meanwhile, there’s one key component of inflation that is falling. India’s food price index has decelerated in early December. The index stood at just 1.81% in the period to 10 December. The previous week it was at 4.35%. The latest easing was led by a fall in the prices of cereals like rice as well as vegetables like onions. Meanwhile India’s wholesale inflation remains stubbornly high, at around 9%.
In other news, India’s big telecom operators have suffered a major legal setback. Mint has learnt the department of telecommunications has decided to declare illegal all 3G roaming deals between operators. The DoT is now expected to send out notices to operators in the next few days. Back in July, operators like Bharti Airtel and Vodafone signed agreements that allowed them to offer 3G roaming services even in telecom circles that they had not won. But government-run operator BSNL complained to the DoT.
And finally, Indian markets rebounded from early losses to end in the green for a second straight day. The Sensex rose 128 points to 15,813. And the Nifty climbed 41 to 4,734.