RBI Worried About Asset Quality In Pubic Sector Banks

Date : Jun 25, 2015

Indian Economy Resilient but No Room for Complacency: Says RBI’s June 2015 Financial Stability Report

The Reserve Bank of India today released the Financial Stability Report (FSR) June 2015, the eleventh issue of its half yearly publication. The FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system. Besides, the Report discusses issues relating to development and regulation of the financial sector. Highlights:   Global environment Global economic recovery still seems to be far from being self-sustaining even as spill-overs from the monetary policy stance in advanced economies (AEs) are increasing the challenges for emerging market and developing economies (EMDEs). Developments on the Greek debt crisis front and uncertainty over the timing of rate increases by the US Federal Reserve remain immediate possible triggers for global financial market volatility. On domestic front On the domestic front, there has been significant improvement in the macroeconomic environment and going forward, economic performance is expected to be better. External vulnerability has reduced and progress has been made with regard to fiscal consolidation. While foreign portfolio flows to India have been strong during the past year, unexpected changes in AE monetary policy may lead to slowdown/reversal of such flows with implications for segments of financial markets. India is though better prepared to deal with the volatility, as compared to previous episodes. Banking sector While risks to the banking sector, as reflected by the Banking Stability Indicator and Map, have moderated marginally since September 2014, concerns remain over the continued weakness in asset quality indicated by the rising trend in stressed advances ratio of scheduled commercial banks (SCBs), especially of public sector banks (PSBs). Macro stress tests suggest that current deterioration in the asset quality of SCBs may continue for few more quarters, and PSBs may have to bolster their provisions for credit risk from present levels, to meet the ‘expected losses’ if macroeconomic environment were to deteriorate under assumed stress scenarios. However, capital to risk weighted assets ratio (CRAR) of SCBs, at system level, was observed to remain above the regulatory minimum even under adverse macro-economic conditions assumed in these tests. The falling profit margins and decreasing debt repayment capabilities of the corporate sector add to these concerns, though overall leverage level in Indian economy is comfortable when compared to other jurisdictions. While the regulatory move towards encouraging greater market access and market discipline will help the development of domestic financial markets, the banking sector, especially the PSBs will be expected to continue to shoulder the needs of the accelerating growth in the economy. In this context, the policy initiatives for improving the governance and management processes at public sector banks become significant. Securities and commodities markets The concerns emanating from rapid rise in algorithm trading in recent years highlight the need for caution for India’s securities markets, while measures have been taken to address the same. Significant steps have been taken to tighten the regulations dealing with illegal money-raising activities and insider trading, and also to strengthen the risk management systems at depositories. The agricultural insurance needs urgent focus in the wake of frequent episodes of weather related calamities and their impact, particularly on small and marginal farmers. On the other hand, there is a need to harmonise the regulation of physical commodities market and strengthening the linkages between the derivatives markets and physical (cash) markets, mainly in agricultural commodities. The expected shifts in demography in coming decades call for attention on old age income security and pension schemes, especially in the case of unorganised sector for which a new scheme has been announced by the union government. To conclude Overall, India’s relatively stronger macroeconomic fundamentals in terms of growth, inflation, current account and fiscal deficits provide a reasonable degree of resilience to Indian financial system in the event of spill-over effects from global factors. However, with the continued uncertainty over global growth and in the absence of effective international monetary policy coordination, there can be no room for complacency. Alpana Killawala Principal Chief General Manager       Date : Jun 25, 2015 RBI extends the Date for Withdrawal of Pre-2005 Series Banknotes The Reserve Bank of India has extended the date for the public to exchange their pre-2005 banknotes till December 31, 2015. It had, in December 2014, set the last date for public to exchange these notes as June 30, 2015. Soliciting cooperation from members of public in withdrawing these banknotes from circulation, the Reserve Bank of India has urged them to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them. The Reserve Bank has stated that the notes can be exchanged for their full value. It has also clarified that all such notes continue to remain legal tender. Explaining the move, the Reserve Bank said that the banknotes in Mahatma Gandhi series have now been in circulation for a decade. A majority of the old banknotes have been withdrawn through bank branches. It has, therefore, decided to withdraw the remaining old design notes from circulation. Not having currency notes in multiple series in circulation at the same time is a standard international practice, the Reserve Bank has pointed out. The Reserve Bank will continue to monitor and review the process so that the public is not inconvenienced in any manner. Alpana Killawala Principal Chief General Manager   Bank branches cross 1 lakh mark: Crisil 'Financial inclusion improved in FY13 as banking services gained ground, with the number of savings accounts and bank branches registering fastest growth in four years' Financial inclusion improved in FY13 as banking services gained ground, with the number of savings accounts and bank branches registering fastest growth in four years, Crisil said on Thursday. As many as 11.7 crore new savings accounts opened in FY13, an increase of 16.8% y-o-y. Bank branches crossed the 1-lakh landmark.   Continued progress in banking services and addition of micro-finance institutions (MFI) data helped Crisil Inclusix register a score of 50.1 at the end of FY13, from 42.8 at the end of FY12, the rating agency said in a report.   However, the index values for the two years are not directly comparable as MFI data was not available for FY12. Crisil Inclusix measures the extent of financial inclusion in India across its 652 districts.   It, however, found basic financial services remained under-penetrated. One-third Indians did not had a savings account at the end of FY13, while only one in seven had access to credit, it said. “We expect tailwinds to financial inclusion from policy steps taken such as the Pradhan Mantri Jan Dhan Yojana (which has not been factored in this edition of Inclusix), and differentiated banking licences,” said Raman Uberoi, president, corporate affairs, Crisil. Under Jan Dhan Yojana, over 14 crore savings accounts have been opened, which will add to the Inclusix score for 2015, he added.