These figures too compare favourably with the international trends and have been driven by the improvements in loan loss provisioning by the banks as also by the improved recovery climate enabled by the legislative environment. What is noteworthy is that the NPA ratios have recorded remarkable improvements despite progressive tightening of the asset classification norms by the RBI over the years.
An insufficient medium-term orientation and a systematic asymmetry in responding to shocks – with downside risks to the economy always receiving a greater weight in central bankers’ “policy preferences” than upside risks to price stability – all of this contributed to the build-up of financial imbalances in some advanced economies.