GS Paper 2
Source: RBI, Indian Express
Context: In a report – Trend and Progress of Banking in India 2021-22 – RBI said that banks must ensure due diligence and robust credit appraisal to limit credit risk.
- This report is statutory compliance in accordance with the Banking Regulation Act 1949, and presents the performance of banking sectors ( including cooperative banks and NBFCs)
Key findings of the report:
- Double-digit growth in the balance sheet of scheduled commercial banks (SCBs)
- Impact: This is good news for the banking sector in India.
- Definition: SCBs are those banks which are included in the second schedule of the RBI Act 1934and which carry out the normal business of banking such as accepting deposits, giving out loans and other banking services.
- Gross non-performing assets (GNPA) for SCBs have declined (from 9% (2017-18) to 5.8% (march 2022))
- Reasons for decline in GNPAs: Banks have given write-offs or upgradation; greater scrutiny and monitoring of loans; greater recovery of loans after the Insolvency and Bankruptcy Act 2016
- The financial performance of Urban cooperative banks showed improvement
- Non-banking financial company (NBFC) sector improved in 2021-22. With strong capital buffers, adequate provisions, and sufficient liquidity, NBFCs are poised for expansion.
- Definition: NBFC or Non-Banking Financial Institutions are the institutions that have been registered under the Companies Act, 1956. NBFCs offer bank-related services without having banking licenses. Even though NBFCs provide financial services, they differ from banks in many ways.
RBI financial stability report
- Enumerate the steps taken so far to expedite and enable the resolution of NPAs in India. Critically analyse the potential of National Asset Reconstruction Company Ltd (NARCL) as the “Bad Bank” in addressing the issue of NPAs.
- How far can financial inclusion help in containing the high level of NPAs of banks in India? Substantiate your views with two examples. (200 words)
- Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (UPSC CSE 2017)
(a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.
(b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.
(c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.
(d) It is an important provision in The Insolvency and Bankruptcy Code’ recently implemented by the Government.