“The RBI articulated its approach to countercyclicality in its policies by indicating the criticality of the banking system for large segments of the population and for the economy as a whole.
Hence the RBI adopted a precautionary approach to essentially protect the banking system from a “bust” were it to occur for any reason.”4 This was amplified in October 2005 in the Mid-term Review of Annual Policy for the year 2005–06, while increasing provisioning on standard assets across the board (except for SMEs and agriculture): “Traditionally, banks’ loans and advances portfolio is pro-cyclical and tends to grow faster during an expansionary phase and grows slowly during a recessionary phase.