Media Type

Article

Publication Date

10-11-2025

Description

The current macroeconomic context is not very conducive to the growth of capital markets. Stagnant per capita incomes, high inflation, declining investment, large fiscal deficit, severe energy shortages, current account imbalances and drying up of foreign investment do not provide an appetizing menu of options for the savers, investors and issuers. Strong borrowing needs of the government have increased banks’ exposure to government paper. As banks account for 95 percent of the total financial assets private sector credit has there shrunk. The share of net advances has dropped from 57 percent to 44 percent between Dec 2008 and June 2011. The amount of net investment has increased from 19 percent to 34 percent. The response of the banks was quite rational. Credit risk has significantly increased due to deterioration in macroeconomic environment. Surge in delinquencies and loan losses have made the banks more cautious in lending to counterparties other than known names or well established brands. The continuous stream of lucrative risk-free government securities at the same time has led to assured profitability and preservation of capital. Advance-Deposit ratio is down to 57 percent while Investment to Deposit ratio has inclined up to 43 percent – unprecedented in the recent times.

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