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Saturday 25 January 2020

Economic Survey explains how govt is helping banks fight NPA

New Delhi: The Economic Survey 2017-18 recalled that an ecosystem for the new insolvency and bankruptcy process took shape in 2017-18, a mechanism that the government is using actively to resolve the non-performing assets (NPA) problem of the banking sector. A major factor behind the effectiveness of the new code has been the adjudication by the judiciary.

The code prescribes strict time limits for various procedures under it. In this process, a rich case-law has evolved, reducing future legal uncertainty.

This happened in the backdrop of the banking sector, public sector banks in particular, continuing to be subdued in the current financial year. The gross non-performing advances ratio of scheduled commercial banks increased from 9.6% to 10.2% between March 2017 and September 2017.

Non-food credit grew at 8.85% Y-o-Y in November 2017 as compared to 4.75% in November 2016. Bank credit lending to services and personal loans segments continue to be the major contributor to overall NFC growth.

The non-banking financial companies, as a whole, accounted for 17% of bank assets and 0.26% of bank deposits as on 30 September 2017. The consolidated balance sheet size of the NBFC sector increased by 5% (September 2017 over March 2017) to Rs 20.7 lakh crores, as against an increase of 14.2% between March 2016 and March 2017.

The monetary policy, the survey noted, remained steady with only one policy rate cut in August, during 2017-18 (till January). The policy during 2017-18 was conducted under the revised statutory framework, which became effective from 5 August 2016.

In the third bi-monthly Monetary Policy Statement for 2017-18 in August 2017, the Monetary Policy Committee decided to reduce the policy repo rate by 25 basis points to 6%. It kept the rates unchanged in both October and the latest meeting held in December.

In tandem with the re-monetisation process, from 17 November 2017, as a favourable base effect set in, the year-on-year growth of both the currency in circulation and M0 turned sharply positive and higher than their respective growth rates in the previous year.

After demonetisation in early November 2016, the Reserve Bank had scaled up its liquidity absorption operations using a mix of both conventional and unconventional instruments.

Liquidity conditions remain in surplus mode even as its magnitude moderated gradually with progressive remonetisation. Weighted Average Call Rate in recent months has drifted to the middle of the policy corridor.

The year 2017-18 (April-November) witnessed a steady increase in resource mobilisation in the primary market segment as compared to the corresponding period in the last financial year.

The 10-year government security (G-sec) yield, meanwhile, has hardened since September 2017. The G-sec yield as on 11 January stands at 7.26%.

The stock markets also hit record highs this financial year.

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