Pre-cum-Mains GS Foundation Program for UPSC 2026 | Starting from 5th Dec. 2024 Click Here for more information
News:
- The financial stability report released by the RBI recently.
Important facts:
2. The report has warned that gross non-performing assets(GNPAs) of scheduled commercial banks could rise from 11.6% in March 2018 to 12.2% in March 2019.
3. This would be highest level of bad debt in almost two decades.
4. The GNPA of banks under the prompt corrective action framework, in particular, is expected to rise to 22.3% in March 2019, from 21% this March.
5. The RBI has warned about rising external risks that pose a significant threat to the economy and to the banks.
6. Major highlights of the report:
- Major highlight of the report is the central bank’s finding that public sector banks (PSBs) are far more prone to fraud than their private sector counterparts.
- This is significant in light of the huge scam unearthed at a Punjab National Bank branch earlier this year.
- According to RBI , more than 85% of frauds could be linked to PSBs, even though their share of overall credit is only about 65%.
7. Challenges/hurdles:
- The tightening of monetary policy by the United States Federal Reserve and increasing borrowings by the U.S. government caused credit to flow out of emerging markets such as India.
- The increase in commodity prices is another risk on the horizon that could pose a significant threat to the rupee and the country’s fiscal and current account deficits.
8. Implications of this :
- According to RBI, this will increase the size of the provisioning for losses and affect the capital position of banks.
- The capital to risk-weighted assets ratio of the banking system as a whole is expected to drop from 13.5% in March 2018 to 12.8% in March 2019.
- Jeopardize the expectation of a bottoming out of the NPA crisis that has affected the banking system and impeded credit growth in the economy.
- Increase in inflation .
- Increase the risk of an economic slowdown and exert pressure on the entire banking system.
9. The RBI noted the following reforms in its report:
- The RBI Deputy Governor Viral Acharya has noted that governance reforms at PSBs, can help improve their financial performance and also reduce their operational risks.
- The recapitalisation plan for banks and the implementation of the Insolvency and Bankruptcy Code to improve the capital position of banks.
- Government need to make drastic changes to aspects of operational autonomy and the ownership of PSBs.
