Demonetisation, GST hold potential to transform India; NPAs key risk: RBI

Mumbai: Calling demonetisation and goods and services tax (GST) as policy decisions which will transform economy, Reserve Bank of India (RBI) on Thursday made these observations were made in the Report on Trend and Progress of Banking in India 2015-16 (RTP) and the 14th issue of the Financial Stability Report (FSR).

However, the central bank also flagged elevated risks due to continuous deterioration in banks' asset quality.

It also observed that while the financial performance of the corporate sector has improved in 2016-17, the risk of lower turnover remains. It also said large borrowers registered significant deterioration in their asset quality.

"The measures such as transition to the nationwide GST and the withdrawal of legal tender status of specified bank notes (old Rs 500/1000) could potentially transform the domestic economy, notwithstanding some inconvenience to public and the momentary adverse impact on growth," RBI said.

In his foreword to FSR, RBI Governor Urjit Patel said the withdrawal of Rs 500/1000 notes "will impart far reaching changes going forward".

"It is expected to significantly transform the domestic economy in due course in terms of greater intermediation, efficiency gains, accountability and transparency through increasing adoption of digital modes of payments, notwithstanding the short-term disruptions in certain segments of the economy and public hardship," he said.

The Governor also cautioned that there is "little room" for complacency and it is important to guard against sporadic volatility in financial markets.

RBI further said that the banking stability indicator shows that the risks to the banking sector remained elevated due to continuous deterioration in asset quality, low profitability and liquidity.

With PTI Inputs