NABARD GRADE A PREVIOUS YEAR PAPER OF ESI
RBI’s “Financial Stability Report”
About the state of financial sector
- Gross non-performing asset (GNPA) ratio:
- For the banks may increase to 9.9% by September 2020 from 9.3% in September 2019.
- Due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth.
- The state-run banks’ GNPA ratios may increase to 13.2% by September 2020 from 12.7% in September 2019.
- The recapitalisation of state-run banks by the government, banks’ capital to risk-weighted assets ratio (CRAR) improved to 15.1% in September 2019 from 14.3% in March 2019.
- The asset quality of agriculture and services sectors, as measured by their GNPA ratios, deteriorated to 10.1% in September 2019 from about 8% in March 2019.
- The banks’ net non-performing assets (NNPA) ratio declined in September 2019 to 3.7%.
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The growth rate plummeted from the level of 8.1% in the fourth quarter of 2017-18, quarterly GDP to 4.5% in the second quarter of 2019-20, a fall of 3.6 percentage points.PROBLEMS IN THE ECONOMIC SLOWDOWN
- Fall in capital formation: Steep fall in investment rate (gross fixed capital formation rate) from 34.3% in 2011-12 to 27.8% in the second quarter of 2019-20.
- Financial sector issues
- The gross non-performing loan ratio remaining stable at 9.1 percent as of September.
- ILFS and PMC bank crisis has eroded customer trust in the banking sector.
- Slackening demand:
- Several important sectors such as automobiles, consumer durables show a slackening of demand.
- This is also reflected in the low capacity utilization of several industries.
- The weakening of investment: The fall in private expenditure has led to the
- Rising inflation: Food inflation has crossed the 10% mark for the first time in many years
- Problematic GST implementation
- Hasty implementation led to pushing many commodities into lower slabs.
- Limitation of the RBI Monetary policy:
- RBI has reduced the Repo rate by 135 percentage points since February 2019 to date.
- Banks have not reciprocated due to the high level of non-performing assets.
- The Reserve Bank of India (RBI) can play limitations.
- Problems with the countercyclical policies
- The fiscal deficit of the Government of India was raised to 6.0% in 2008-09 during the international financial crisis of 2008.
- While this extraordinary increase led to the growth rate rising immediately, it landed us in problems
- Unfavorable global growth
- The global growth rate stood at sub-par 3% as per the World Bank.
- This may not help boost the export sector.
- Increase in CAPEX of state-owned entities
- A focused increase in capital expenditures of the Government and the Central public sector undertakings (PSUs) may help to apply the brakes on the slowdown.
- It might also help to “crowd in” private investment.
- Reforming the GST
- Maintaining database and Prioritizing big-data may help in tax collection.
- The GST has to become more manufacturer and trader friendly.
- Relook at the commodities falling under various slabs.
- Cleansing financial system
- The quickening of the resolution process of stressed assets.
- The recapitalization of public sector banks has to take priority.
- Cleansing of the financial system which includes finding solutions to the problems of non
- Defining the relationship between governments and boards of public sector banks and on their respective roles in management -banking financial companies(NBFCs).
- Unveiling Structural reforms:
- Segments such as agricultural marketing, land and labor markets which are waiting for reforms, product market reform,
- Enhancing competition among the producers.
- Pursuing some of the more media to long term reforms such as in education and health.
- The counter cyclical measure can complement the structural reforms