Stressing the obvious

Juxtapose some of the charts in RBI’s latest financial stability report, and it’s difficult to figure out they’re talking about the same thing. The very first chart, India’s financial stability map, shows remarkably little deterioration between March and September (possibly the December map will be different?); while this includes ‘macro stability’ as one of the three factors, the more detailed ‘macroeconomic stability map’ shows a marked deterioration; the ‘financial markets stability map’ shows little deterioration, including in the ‘banking sector’, but the ‘banking stability map’ shows a huge deterioration in 3 of 5 parameters! Indeed, the chapter on financial institutions has sub-heads like ‘vulnerabilities in the banking sector increase …’ ‘… as capital slides due to disconnect between rate of capital augmentation and risk profile’ and ‘asset quality deteriorates since slippages outpace credit growth by a wide margin’—in the first half of the year, bad loans grew three times as fast as they did in the first half of 2006-11, and they outpaced credit growth in H1FY12. So the central message of the stability report, that things are under control, does get diluted.

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