Amid the rupee free fall and contraction of major economic indicators, the Reserve Bank of India (RBI) has said a recovery was still possible and could take shape later in the current financial year.
This, however, was on the condition of better governance, removal of supply constraints and maintenance of stability.
The central bank expects India’s gross domestic product (GDP) to grow at 5.5% in the current fiscal. In the first-quarter monetary policy review, RBI had revised the estimate downwards from 5.7% as stated in April.
In its annual report on Thursday, RBI said that household financial savings in the country had improved marginally to 7.7% from 7.5% in the previous year. This is still lower than 10.3% clocked in 2010-11. While growth in bank deposits, mutual funds helped prop up financial savings, rise in financial liabilities, retail credit dampened them. Investment in gold fell to 2% as compared with 2.4% in 2011-12.
RBI said while current account deficit was expected to widen in the first quarter of current fiscal, it would correct as the year progresses. By March 2014, CAD would be lower than the historic-high levels of the previous fiscal on account of government measures, it said. CAD was at 4.8% in 2012-13.
The central bank warned of rising non-performing assets (NPAs) and said that infrastructure issues, if not resolved quickly, could have a domino effect on the asset quality of banks.
By June 2013, the ratio of NPAs to gross advances for banks increased markedly to 3.92% from 2.36% in March 2011. Restructured assets were 2.6% of GDP in December 2010 to 6.1% in June 2013 before declining marginally to 5.8% in March 2013.
RBI said that public sector banks accounted for a disproportionate share of this increase, with new private banks managing to lower their NPA ratio in this difficult climate. It said that industrial growth has been nearly stagnant for two years now, with signs that the stagnation has extended to 2013-14.