Login With Google
Financial Stability Report : Reviving economy faces risks
Why in the news ?
- RBI observed that the 7.7% GDP growth in the last quarter indicates the “economy is well on the recovery track” on the back of a sharp pickup in gross fixed capital formation.
- At the same time RBI warned gathering headwinds including fiscal and current account challenges posed risks to the economic momentum.
- As per the report, the aggregate demand composition indicates a broadbased growth with revival of investment.
- Also there has been an uptick in capacity utilisation with some industries such as steel closing the gap.
- At the same time the condition of fiscal consolidation, moderation in inflation and a benign current account are changing, warranting caution.
- The progress achieved on fiscal consolidation could face challenges unless there was buoyancy in tax receipts and restraint on expenditure.
- The widening current account deficit — the shortfall widened in 2017-18 on the back of a wider trade deficit.
- As per the report, Enhanced supply of export credit from private sector banks, foreign banks and nonbanking financial companies could offset the potential adverse impact on trade credit.
- Evolving geopolitical developments and rising protectionist sentiments posed a risk.
Rise in NPAs
- RBI in its repo also warned that gross non-performing assets of troubled banks are likely to rise further under the current macro-economic scenario.
- It said the stress in the banking sector continues as gross NPA ratio rises further. Profitability of SCBs declined, partly reflecting increased provisioning.
- Under the baseline scenario of current macroeconomic outlook, gross NPA ratio of banks may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019.
- The gross NPA ratio in the industry sector rose from 19.4 per cent to 22.8 per cent during the same period whereas stressed advances ratio increased from 23.9 per cent to 24.8 per cent.
- Within industry, the stressed advances ratio of subsectors such as gems and jewellery, infrastructure, paper and paper products, cement and cement products and engineering registered rise in March 2018 from levels in September 2017.
- According to the RBI report, the PCA framework could help to mitigate financial stability risks, so that further capital erosion is restricted and banks are strengthened to resume their normal operations.
Source
The Hindu, Indian Express.