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The Reserve Bank of India’s (RBI’s) latest financial stability report shows that there is no respite from stressed assets for the banking sector.
One of the reasons for stress in the banking sector is subdued performance in the corporate sector and the inability of some companies to repay debt. But things may have started to improve on this account. The proportion of leveraged and highly leveraged companies in RBI’s sample has registered a decline. Stressed advances ratio in the infrastructure sector has also seen improvement. The government’s push in the infrastructure sector seems to have started showing some results.
But this improvement may not be sufficient to provide significant relief, as parts of the industrial sector, such as metals—which account for the highest stressed advances ratio—continue to face an unfavourable business environment. For now, the level of stressed assets in the system will continue to affect banks’ ability to lend.