Demonetisation, GST can transform economy, says RBI

Pain caused to public, impact on economic growth momentary; asks banks to lend more to MSMEs

The Reserve Bank of India (RBI) on Thursday asked banks to provide additional working capital limit to medium, small and micro enterprises (MSMEs) to deal with cash crunch following the Narendra Modi-led central government’s November 8 decision to demonetise high-value currency notes.

The central bank also said that demonetisation, besides the goods and services tax (GST), could transform economy, notwithstanding the inconvenience caused to the public and the momentary impact on economic growth.
On the corporate sector, the central bank said the performance of industry had improved, though the risk of a lower turnover remained.

On the performance of the financial sector, it said business growth for banks remained subdued, and public-sector lenders continued to lag their private-sector peers, with profit contracting in the first half of 2016-17. At 9.1 per cent in September, against 7.8 per cent in March 2016, banks’ bad loans were pushing overall stressed advances ratio to 12.3 per cent from 11.5 per cent, RBI said.

Financial system remained stable, although banks, particularly PSBs, continued to face significant levels of stress, the central bank added.