Financial Awareness for RBI Grade B-1 July 2017

  1. RBI report warns of more NPA pain, sees bad loans topping 10% by March 2018 (Source: MINT)
  • The Reserve Bank of India (RBI) has warned that risks to the banking industry’s stability have worsened, with asset quality and profitability deteriorating further.
  • The latest edition of the regulator’s Financial Stability Report (FSR), released on 30th June’17, said a severe credit shock is likely to impact capital adequacy and profitability of a significant number of banks. · The report forecast that the banking system’s gross bad-loan ratio will rise to 10.2% of the total loan book a year later if economic conditions stay the same. Bad loans made up 9.6% of total assets as of March 2017.
  • In scenarios of severe stress, the ratio may jump to as high as 11.2% by March 2018, the report said. For public sector banks, the gross bad loan ratio could touch as high as 14.2% by March 2018.

2. RBI flags concern over rising cyber attacks (Source: BL/ ET)

  • While migration to digital payments bodes well for the country, both in terms of cutting the cost of printing currency as well as leaving a trail of all such transactions leading to better tax compliance, it also opens new risk frontiers as digital payment channels are introduced to people with varying economic background and literacy levels, according to Reserve Bank of India.
  • The report observed that increasing confluence of demographic change and technological breakthroughs are forcing banks to adopt delivery channels such as ATMs, the Internet and mobile banking, which are transforming them into faceless entities. The recent push for digitisation of financial transactions has led to growth in the use of digital products, particularly the wallets and Unified Payments Interface (UPI).
  • In such a scenario, no system can be considered safe unless the entire ecosystem is secure, which is very challenging to ensure, the central bank said. The RBI flagged the rapid proliferation of frauds in the banking space over the last five years marking out a 19% increase in the number of fraudulent incidents and 72% increase in the value of the amount lost.

3. Govt slashes small savings interest rate by 10 basis points (Source: MINT)

  • The government has slashed interest rates on small savings schemes by 10 basis points for the July-September period from the rates applicable in the previous quarter, a move that will prompt banks to lower deposit rates.
  • As per the notification, PPF will fetch a lower annual rate of 7.8% while KVP will yield 7.5% and mature in 115 months. The girl child savings scheme Sukanya Samriddhi Account will offer 8.3% annually. Investments in the five-year Senior Citizens Savings Scheme will yield 8.3%. The interest rate on the senior citizens’ scheme is paid quarterly

4. Core sector growth up 3.6% in May from 2.8% in April on energy push (Source: BS)

  • Core sector output rose by 3.6 per cent in May, up from the 2.8 per cent rise the previous month of April. The improving pace of growth, counted year on year, was primarily led by the electricity sector supported by refinery products and natural gas.
  • Data showed that the eight core industries had cumulative growth of 3.2 per cent in the first two months of the current financial year.

5. Revenue deficit surpasses full year target (Source: BL)

  • The Centre’s fiscal deficit rose to Rs. 3,73,361 crore or 68.3 per cent of the full-year target till May 2017. However, the revenue deficit rose to Rs. 3,23,478 crore, surpassing the full-year target by 0.5 per cent during May 2017 itself.
  • The fiscal deficit was 42.9 per cent in the corresponding period last year. Meanwhile, revenue deficit stood at 56.2 per cent and expenditure was lower too at 15.1 per cent of the full year budgeted target till May 2016

6. RBI report sees India’s economic growth rate at 7.3% in 2017-18 (Source: MINT)

  • The Reserve Bank of India (RBI) said the ongoing accelerated reform initiatives like GST and continuing political stability will push the economic growth scale to 7.3% in terms of gross value added (GVA) in the current fiscal year. The Financial Stability Report 2017, released on 30th June’17, bases its optimism to the lower fiscal deficit at 3.2% for this year down from 3.5% in 2016-17, increasing public CAPEX and support to poorer households, small businesses and the rural sector.

7. GST launch: India takes a leap towards ‘one nation one tax (Source: BS)

  • The midnight launch of the Goods and Services Tax (GST), the biggest tax reform since independence, catapults India into a select league of nations that have a national sales tax.
  • The GST will eliminate the compounding effect of the current multi-layered tax system as well as the cross-state tax heterogeneity by fixing the final tax rate. It is expected to lower the average tax rate on manufactured goods and make them uniform across states by fixing the final tax rate.

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