Context: RBI Released its annual report, it suggested banks to focus on the restructured loans during Covid pandemic.

Short Summary of the Annual report:

  1. RBI warns banks on restructured loans  flags possibility of increased slippages from sectors that have been more exposed to the pandemic in the post pandemic recovery era.
  2. The banking sector has improved on financial parameters despite the COVID­19 pandemic.
  3. Highlighting that the setting up of the National Asset Reconstruction Company (NARCL) would help in the resolution of large value, legacy stressed assets, and serve as a time efficient mechanism for reviving investor interest in primary and secondary markets for stressed assets, the RBI said going forward, continued commitment, professionalism and transparency would help in making the exercise cost­ and time effective. 
  4. It Suggested that NBFCs and urban cooperative banks should:
    1. They have to be mindful of risks.
    2. They must ensure robust asset liability management
    3. They should work on improving the quality of their credit portfolios.
    4. The significant nature of NBFCs in financial stability requires continuous attention to their financial health.
  5. Short term Measures Required:
    1. Strengthening the regulatory and supervisory framework.
    2. Addressing supply side bottlenecks.
    3. Calibrating monetary policy to bring inflation within the target.
    4. Supporting growth.
    5. Targeted fiscal policy support to aggregate demand.
    6. Increasing capital spending.
  6. Recovery underway’: The challenges brought-in by 2021-22 had a spark of recovery accompanying future growth.

Key facts to remember

  1. Gain from foreign exchange transactions rose from Rs 29,993 crore to Rs 50,629 crore in 2020-21.
  2. RBI transferred Rs. 99,122 crore, a higher surplus amount to the government this year, following a sharp fall in expenditure and gains from foreign exchange transactions during the FY 2020-21.
  3. The rupee strengthened by 3.5% against the US dollar at end of FY 2020-21 but underperformed compared to other Asian countries.
  4. Bank frauds of Rs.1 lakh and more fell by 25% in value and 15% in number during the FY 2020-21.
  5. The Covid-19 pandemic increased the proliferation of digital modes of payments. Total digital transaction volume in 2020-21 stood at 4,371 crore, as against 3,412 crore in 2019-20.
  6. The secondary market G-sec acquisition programme (G-SAP).
  7. RBI predicted 10.5% GDP (Gross Domestic Product) growth for the year 2021-22.

Way forward: Going forward, as the economy recovers and credit demand rises, banks would need to focus on supporting credit growth while being vigilant of the evolving risks.