The consequent financial distress of debtors can lead to widespread defaults, bankruptcies, and bank failures, with potentially devastating consequences for the entire financial system. BIS Review 27/2003  1  The adverse effects of deflation go beyond financial markets. Deflationary pressures can impede the effective clearing of labor markets.
Admittedly, the capital to risk weighted asset ratio (CRAR) of our banks, at the aggregate level, is above the Basel III requirement although a few individual banks may fall short and have to raise capital. But capital adequacy today does not necessarily mean capital adequacy going forward.