MUMBAI: The Reserve Bank of India RBI ) has said that gross bad loans of banks are likely to rise to 11.1 per cent by September 2018 from 10.2 per cent as of September 2017. However, on the positive side, tests show that the degree of interconnectedness in the banking system has decreased gradually since 2012.“The overall risks to the banking sector remained elevated due to asset quality concerns. Between March and September 2017, the gross non-performing advances (GNPAs) ratio of scheduled commercial banks ( SCBs ) increased from 9.6 per cent to 10.2 per cent and the stressed advances ratio marginally increased from 12.1 per cent to 12.2 per cent,” the RBI said in its financial stability report (FSR) released on Thursday.“The macro stress test for credit risk indicates that under the baseline macro scenario, the gross non-performing assets may increase to 10.8 per cent by March 2018 and further to 11.1 per cent by September 2018,” the report said.Among other risks to Indian banks, the report has flagged financial technology companies and cryptocurrencies as a potential risk. “In particular, greater acceptance of cryptocurrencies is becoming a formidable risk to the traditional banking system,” the report said.On online risks, the RBI said that the policy push towards digitisation of the financial system hinges crucially on a robust cyber-security framework. The RBI said that it has set up an inter-disciplinary standing committee to review the threats inherent in the existing/emerging technology on an ongoing basis.Despite the concerns thrown up by stress tests, the RBI is optimistic on the growth front. “Domestically, the economy appears to have rebounded after the initial hiccups associated with the rollout of nationwide goods and services tax (GST), coming on the back of demonetisation. While the ongoing de-leveraging in the heavily indebted parts of the corporate sector and muted credit growth in the public sector banks pose a risk to growth, the decisive recapitalisation move by the government could provide the much needed fillip to private investment going forward,” deputy governor N S Vishwanathan said in a foreword to the report.In a separate report on ‘The Trends and Progress of Banking in India’, the RBI said that the Financial Resolution and Deposit Insurance Bill, 2017 introduced in Lok Sabha will address the moral hazard problem associated with various forms of government guarantees.The moral hazard refers to lenders with poor track record being able to raise funds at same rates as the best banks on the back of a government guarantee. According to the RBI, the new bill provides speedy and efficient resolution of distress for certain categories of financial service providers and recommends establishment of a Resolution Corporation (RC) for protection of consumers of specified service providers and of public funds.