Reviving consumption, investment a challenge: RBI

Published : Dec 28, 2019, 1:26 PM IST

The global economy confronted a number of uncertainties - a delay in the Brexit deal, trade tensions, a whiff of an impending recession, oil market disruptions and geopolitical risks leading to a significant deceleration in growth, said the RBI's Financial Stability Report December 2019.

RBI

New Delhi: Reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge, a Reserve Bank of India (RBI) report said on Friday.

The global economy confronted a number of uncertainties - a delay in the Brexit deal, trade tensions, a whiff of an impending recession, oil market disruptions and geopolitical risks leading to a significant deceleration in growth, said the RBI's Financial Stability Report December 2019.

These uncertainties weighed on consumer confidence and business sentiment, dampened investment intentions and are likely to remain a key drag on global growth, it said.

Predictably, lower interest rates and easy monetary policies are boosting leverage globally, with the indebtedness of emerging market (EMs) governments and households showing a distinct increase, besides supporting asset prices and capital flows to EMs.

"On the domestic front, aggregate demand slackened in Q2 2019-20, further extending the growth deceleration. While the outlook for capital inflows remains positive, India's exports could face headwinds in the event of the sustained global slowdown, but current account deficit is likely to be under control reflecting muted energy price outlook," the RBI said.

"Reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge going forward," it said.

Various policy announcements by the government coupled with the central bank's accommodative stance are expected to provide an enabling environment to bolster economic performance in the medium-term, though short term pressures remain.

Bank frauds rise to a record Rs 1.13 lakh cr in H1 FY20

Frauds reported by banks during the first half of the current fiscal touched an all-time high amount of Rs 1.13 lakh crore, owing to delay in detection by lenders, according to an RBI report.

This involved 4,412 fraud cases of Rs 1 lakh and above, as per the report.

In FY19, banks had reported 6,801 cases of fraud involving Rs 71,543 crore.

"An analysis of the vintage of frauds reported during the FY19 and H1 FY20 shows a significant time-lag between the date of occurrence of fraud and its detection," RBI's Financial Stability Report said.

These uncertainties weighed on consumer confidence and business sentiment, dampened investment intentions and are likely to remain a key drag on global growth, it said.

"Reviving the twin engines of consumption and investment while being vigilant about spillovers from global financial markets remains a critical challenge going forward," it said.

Bank frauds rise to a record Rs 1.13 lakh cr in H1 FY20

Frauds reported by banks during the first half of the current fiscal touched an all-time high amount of Rs 1.13 lakh crore, owing to delay in detection by lenders, according to an RBI report.

This involved 4,412 fraud cases of Rs 1 lakh and above, as per the report.

In FY19, banks had reported 6,801 cases of fraud involving Rs 71,543 crore.

Intro:Body:

New Delhi: The banking sector mess continues with scheduled commercial banks' (SCBs) credit growth remained muted at 8.7 per cent year-on-year (y-o-y) in September 2019 and the gross GNPA ratio remained unchanged at 9.3 per cent between March and September 2019 for these banks and likely to rise to 9.9 per cent by next September, the RBI said in a report.

Macro-stress tests for credit risk show that under the baseline scenario, SCBs' GNPA ratio may increase from 9.3 per cent in September 2019 to 9.9 per cent by September 2020 primarily due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth, said the RBI in the Financial Stability Report.

During the period till September 2019, though private sector banks registered double digit credit growth of 16.5 per cent, SCBs' gross non-performing assets (GNPA) ratio remained unchanged at 9.3 per cent between March and September 2019, it said.

The RBI, however, said the financial system remains stable despite weakening domestic growth.

"India's financial system remains stable notwithstanding weakening domestic growth and risks arising out of global/domestic economic uncertainties and geopolitical developments, however, persist. Resilience of banking sector has improved following recapitalisation of PSBs by the government," the Financial Stability Report said.

The SCBs' capital adequacy ratio improved significantly after the recapitalisation of public sector banks by the government and the Provision Coverage Ratio (PCR) of all SCBs rose to 61.5 per cent in September 2019 from 60.5 per cent in March 2019, implying increased resilience of the banking sector.

As per network analysis, total bilateral exposures between entities in the financial system registered a marginal decline in quarter ended September 2019. Among all the intermediaries, private sector banks saw the highest y-o-y growth in their payables to the financial system, while insurance companies recorded the highest y-o-y growth in their receivables from the financial system. Commercial Paper (CP) funding amongst the financial intermediaries continued to decline in the last four quarters.

The size of the inter-bank market continued to shrink with inter-bank assets amounting to less than 4 percent of the total banking sector assets as at end-September 2019. This reduction, along with better capitalisation of PSBs led to a reduction in contagion losses to the banking system compared to March 2019 under various scenarios relating to idiosyncratic failure of a bank/non-banking finance company (NBFC)/housing finance company (HFC) and macroeconomic distress.

The Reserve Bank has initiated policy measures, to introduce a liquidity management regime for NBFCs, to improve the banks' governance culture, for resolution of stressed assets and for the development of payment infrastructure.

It has accepted some of the key recommendations of the Task Force on Offshore Rupee Markets viz., allowing domestic banks to freely offer foreign exchange prices to non-residents and allowing rupee derivatives (with settlement in foreign currency) to be traded in International Financial Services Centres (IFSCs).

Conclusion:

TAGGED:

Credit growth muted in Sep'19

gross NPA may rise by Sep'20

Reviving consumption, investment a challenge: RBI

The global economy confronted a number of uncertainties - a delay in the Brexit deal, trade tensions, a whiff of an impending recession, oil market disruptions and geopolitical risks leading to a significant deceleration in growth, said the RBI's Financial Stability Report December 2019.

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