Pick up in industrial activity, better monsoon to boost growth

Mumbai : The Reserve Bank of India (RBI) expects India’s economic growth rate to accelerate to 7.4 per cent in the current financial year on pick up in industrial activity and good monsoon.

In its annual report released on Wednesday, RBI also said that its monetary policy will continue to be guided by the objective of achieving the medium-term target for retail inflation of 4 per cent, within a tolerance band of +/- 2 per cent, while supporting growth.

It cautioned that India’s external sector will have to confront global headwinds, but expressed confidence that the Current Account Deficit would largely be financed by foreign direct investment.

RBI expects economy to grow 7.4% this fiscal

Several experts, including largest lender State Bank of India (SBI), expects the CAD to widen this fiscal on account of persistent high oil prices and large trade deficit. The CAD was estimated at 2 per cent of the GDP in fiscal year ending March 2018. The report notes that agricultural production is likely to remain strong, growth impulses in industry are strengthening (propelled by a sustained pick-up in manufacturing and mining activity), corporate are reporting robust sales growth and improvement in profitability, and services sector activity is also set to gather pace.

Also, revenue-earning freight traffic of railways has picked up, driven by stepped-up movement in coal, fertiliser and cement.

“Over the rest of 2018-19, the acceleration of growth that commenced in 2017-18:H2 is expected to be consolidated and built upon. “Keeping in view the evolving economic conditions, real GDP growth for 2018-19 is expected to increase to 7.4 per cent from 6.7 per cent in the previous year, with risks evenly balanced,” said the RBI’s Annual Report.

The report has maintained the projection regarding GDP growth for the current fiscal as estimated in the third bi-monthly monetary policy of 2018-19 announced earlier this month. Going forward, it said the up-tick in credit growth is likely to be supported by the progress being made under the aegis of the Insolvency and Bankruptcy Code (IBC) in addressing stress on balance sheets of both corporates and banks, recapitalisation of state-owned banks, and a positive outlook on the economy.

“The prevailing negative credit-to-GDP gap indicates that there is sufficient scope for credit absorption and expansion in bank lending on a sustained basis,” the report said.

RBI surplus transfer to government rises 63.08%

MUMBAI: The RBI said transfer of surplus to the government rose by 63.08 per cent to Rs 50,000 crore during the financial year ended June 30, 2018.

It had transferred a surplus of Rs 30,659 crore to the government in financial year 2016-17. The central bank transfers the surplus generated from its functions to the government at the end of each financial year, after accounting for any funds transferred to the contingency reserve or the asset development fund. It follows July-June financial year.

“A surplus of Rs 50,000 crore was transferred to the central government in FY18,” RBI said in its annual report for 2017-18. During 2017-18, RBI’s balance sheet increased by 9.49 per cent or Rs 3.13 trillion to Rs 36.18 trillion as on June 30, 2018, from Rs 33.04 trillion as on June 30, 2017, the report said.

Bad loan mess to worsen

NEW DELHI: RBI said on Wednesday that banks will witness further deterioration in their non-performing assets (NPAs) or bad loans due to the “economic situation prevailing” in the current fiscal.

As per RBI’s Annual Report 2017-18, gross non-performing assets (GNPAs) plus restructured standard advances in the banking system remained elevated at 12.1 per cent of gross advances at end-March 2018. The combined impact of the increase in provisioning against NPAs and mark-to-market (MTM) treasury losses on account of the hardening of yields eroded the profitability of banks, resulting in net losses, it said. In a pre-emptive response, it said, the RBI allowed banks to spread their MTM losses over four quarters starting from third quarter.

“Going forward, the stress tests carried out by the RBI suggest that under the baseline assumption of the current economic situation prevailing, the GNPA ratio of scheduled commercial banks (SCBs) may increase further in 2018-19,” it said. The aggregate gross NPAs of SCBs increased primarily as a result of this transparent recognition of stressed assets as NPAs, from Rs 3,23,464 crore, as on March 31, 2015, to Rs 10,35,528 crore, as on March 31, 2018.

With deterioration in asset quality and the progressive implementation of Basel III warranting higher buffers, troubled public sector banks (PSBs) received capital infusions via the issuance of recapitalisation bonds and budgetary support. “The Reserve Bank’s revised prompt corrective action (PCA) framework became effective in April 2017. Eleven PSBs placed under this framework so far have been restricted in their operations and subjected to remedial action plan so as to prevent further capital erosion,” it said. In order to curb NPAs, RBI also put in place revised and harmonised guidelines for resolution of stressed assets during the year, replacing earlier schemes like Sustainable Structuring of Stressed Assets (S4A scheme), Strategic Debt Restructuring scheme (SDR), Corporate Debt Restructuring (CDR) scheme and Joint Lenders’ Forum (JLF).

Government may not issue directions on NPAs

NEW DELHI: Ruling out invoking of exceptional powers to issue directions to RBI, a top finance ministry official said on Wednesday that the central bank should take a pragmatic view on resolving stressed assets in the power sector. The Allahabad High Court has turned down a petition by independent power producers challenging the February 12 circular of the Reserve Bank of India which specified that if a resolution was not found by August 27 these accounts should be sent to bankruptcy courts. The court, however, asked the Centre to talk to the central bank to get some relief for the petitioners using the provisions of the RBI Act within 15 days.

Another PSB merger in the offing

NEW DELHI: The government has asked the RBI to prepare a list of candidates for merger among 21 government banks as it seeks to strengthen a banking system laden with bad debt, according to sources. In a meeting this month, finance ministry officials also asked RBI to suggest a time frame for the consolidation, the people said. PSBs need to consolidate to avoid losing more market share to peers in the private sector, the outgoing chairman of Bank of Baroda Ravi Venkatesan said last month. Almost 70 per cent of new deposits went to private banks in the fiscal year and they’re estimated to have cornered 80 per cent of incremental loans through 2020 as mounting bad debt erodes capital and constrains lending at state banks.

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