Thaindian News

Mumbai, Nov 14 (IANS) The Reserve Bank of India (RBI) Monday advised all the commercial banks in the country to improve their asset quality by tightening credit risk management system and stepping up efforts to resolve bad loan issues.

In its annual statutory report on Indian banking system, the RBI said the commercial banks were able to improve their profitability and asset quality in 2010-11 but they need to closely watch their lending in view of the changing interest rate environment.

The central bank’s report has come just a few days after the global credit ratings agency Moody’s lowered its outlook on the Indian banking system.

“During 2010-11, banks were able to improve their profitability and asset quality. Stress test showed that banking sector remained reasonably resilient to liquidity and interest rate shocks,” the report said.

“Yet, there were emerging concerns about banking sector stability related to disproportionate growth in credit to sectors such as real estate, infrastructure, non banking financial companies (NBFCs) and retail segment, persistent asset-liability mismatches, higher provisioning requirement and reliance on short-term borrowings to fund asset growth,” it said.

The RBI said that despite challenges, banking sector in India can look forward to enormous opportunities in their quest for long-term growth.

In the long-term, the report said the banks need to build on four principles, namely efficiency, stability, transparency and inclusion.

“The banking sector needs to focus on growth through inclusion, innovation and diversification while complying with domestic regulations and internalising international best practices.”