Highlights

• The financial stability report released by the Reserve Bank of India on Tuesday has warned that the gross non-performing assets (GNPAs) of scheduled commercial banks in the country could rise from 11.6% in March 2018 to 12.2% in March 2019, which would be the highest level of bad debt in almost two decades.
• The RBI believes that this will increase the size of provisioning for losses and affect the capital position of banks.
• The deteriorating health of banks is in contrast to the economy, which is on the path to recovery, clocking a healthy growth rate of 7.7% during the last quarter.

• External risks

• The tightening of monetary policy by the United States Federal Reserve and increased borrowing by the U.S.government have already 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.

• A major highlight of the financial stability report is the central bank’s finding that public sector banks (PSBs) are far more prone to fraud than their private sector counterparts.
• The RBI notes that more than 85% of frauds could be linked to PSBs, even though their share of overall credit is only about 65%.
• RBI expects the government’s recapitalisation plan for banks and the implementation of the Insolvency and Bankruptcy Code to improve the capital position of banks.
• Government needs to make drastic changes to operational autonomy and the ownership of PSBs ,so that future crises will be prevented.

Source: The HIndu