However, the rapid spread of derivatives may amplify the transmission of shocks, with systemic implications that have still not been fully quantified. Persistent disequilibria, high oil prices and the protracted, rapid growth in liquidity are a cause of concern to monetary authorities in view of their potential repercussions on inflation, the prices of financial assets and exchange rates.
Capital position of banks has, however, improved on account of recapitalisation of public sector banks by the Government and capital raising efforts by private sector banks. Nevertheless, the sector continues to encounter challenges from events like those around the telecom sector. 9. Consequently, the overhang of non-performing assets (NPAs) remains relatively high which is weighing on credit growth.