Reserve Bank of India on Wednesday stressed on the need for a continuous thrust on structural reforms and on improving the ease of doing business to attract robust capital flows to finance the current
Reserve Bank of India on Wednesday stressed on the need for a continuous thrust on structural reforms and on improving the ease of doing business to attract robust capital flows to finance the current account deficit.
According to the 12th Financial Stability Report and the statutory report on trend and progress of banking in India 2014-15 released by RBI on Wednesday, the ratio of short-term external debt to forex reserves has been moderating.
In the report, RBI has also expressed concern at the declining profitability, high leverage and low debt servicing capacity of the corporate sector, with their attendant adverse impact on the financial sector, notwithstanding a marginal improvement observed during the first half of current financial year.
The banking stability indicator shows that risks to the banking sector increased since the publication of the previous FSR, mainly on account of deteriorating asset quality, lower soundness and sluggish profitability.
“There was decline in both deposit and credit ratio in scheduled commercial banks while among other financial institutions, the asset quality of both scheduled urban co-operative banks as well as non-banking financial companies deteriorated during the first-half of 2015-16,” the report claimed.
The RBI’s statutory report observed that the weakening prospects of growth, falling commodity prices and strengthening of the dollar saw non-financial risks shift from the advanced economies to the emerging economies.
However, the Indian economy appeared quite resilient, given a modest recovery in the economy, declining inflation and buoyant capital flows that helped in maintaining the external sector balance.
The RBI feels that India’s financial system remains stable and the relatively stronger macroeconomic fundamentals lend resilience to face the prevailing uncertainty and emerging risks in the global economy and financial markets.
However, it added that the policy makers and stakeholders will need to remain watchful about the potential adverse impact of developments particularly the increased volatility in financial markets and further slowdown in global trade.
