E-Paper
RBI to release annual report for FY19 today. Key things to watch out for
RBI annual report is likely to reiterate RBI’s concerns on the current growth slowdown in the midst of benign inflation. The annual report is likely to highlight the state of the banking system including NBFCs
The Reserve Bank of India is set to release its Annual report for the financial year 2018-19 today. The report, which is released every year, analyses the working and operations of the RBI and suggests measures to improve the economic performance. Here are the 3 main things to watch out for from the annual report.
RBI’s Balancesheet
The FY19 annual report is significant in the backdrop of the release of the new economic capital framework under which RBI will transfer Rs 1.76 trillion surplus to the government. The transfer includes Rs 1.23 trillion of surplus for 2018-19 and Rs 52,637 crore of excess provisions. The annual accounts will therefore give a detailed explanation of the reason behind the increase in surplus during the last financial year. In comparison, the central bank had seen a balancesheet increase of 9.49% with overall surplus at Rs 50,000 core for the year ended 30 July, 2018. Mint had reported on Wednesday that the transfer of the surplus to RBI is balancesheet neutral as it will not require the central bank to sell assets.
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Economic Assessment
The annual report is likely to reiterate RBI’s concerns on the current growth slowdown in the midst of benign inflation. In its last policy RBI had revised GDP growth for FY20 downwards to 6.9% from 7% in the June policy citing weak economic activity and global slowdown. Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate, the central bank had said in the policy.
State of banking system
The annual report is likely to highlight the state of the banking system including non-banking finance companies. In its financial stability report, RBI had said that there is a need for greater surveillance of NBFCs and housing finance companies (HFCs) as the failure of these companies can cause losses comparable to those caused by big banks. The central bank had conducted stress tests on the NBFC sector and on individual lenders in order to gauge their resilience in an event of three stress scenarios—baseline, medium and severe. The tests showed that under the first two scenarios, around 8% of the companies will not be able to comply with the minimum regulatory capital requirements of 15%. Around 13% of the companies will not be able to comply with the minimum regulatory capital adequacy norms under the third scenario, the report had said. The report had also observed that the gross non-performing assets ratio of banks may decline to 9% in March 2020 from 9.3% in March 2019.
