The amount of gross bad loans held by banks are likely to rise from 10.2% of gross advances in September 2017 to 11.1% in September 2018, the Reserve Bank of India said in its Financial Stability Report, which was released on Thursday.
Though the bad loans still posed a high risk to the banking sector, the central bank said tests had shown that the banking system is less interconnected now than in 2012. India’s financial system remained stable overall, it said.
The bank said that increasing acceptance of cryptocurrencies such as Bitcoin was “a formidable risk to the traditional banking system”.
The Reserve Bank of India said that though the overall investment climate was challenging, the situation had improved since the first quarter of the 2017-18 financial year.
Decline in the number and cost of stalled projects, initiatives to improve the quality of government expenditure, the improved ease of doing business ranking, upgrade in sovereign credit rating by Moody’s, and the bank recapitalisation announcement are likely to boost investment sentiments in the coming quarters, the central bank report added.