Study Material | Test Series | Crash Course
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
Current Affairs Crash Course Download Player Download Android App
Q. Risks in banking sector: In the backdrop of RBI’s report, comment on growing concerns of Indian banking sector.
Dec 31, 2016 Related to : GS Paper-3

Ans :

Introduction-

The Reserve Bank of India’s (RBI) recent report “India’s biannual Financial Stability Report” has once again reflected the growing concerns of risk the Indian banking sector is facing. The more worrying factor is according to report the risks were not only high but also elevated in recent time.

Issues and analysis-

  • There has been no perceptible improvement in the health of domestic banks, even six months after the RBI’s previous report.
  • The previous report had highlighted the sector’s high vulnerability on account of the increase in capital requirement and worsening asset quality.
  • According to RBI’s current assessment, the main factors behind the growing risk are continuous deterioration in asset quality, low profitability and liquidity.
  • Serving harness to public savings and direct the flow of crucial credit to the most productive industrial and infrastructure sectors are the central role of the commercial banks.
  • Hence any systemic risk to the banking industry has the potential to ripple across the entire economy. 
  • There is an urgent need for urgent policy interventions. Some measures have been initiated and others are in the pipeline (Ex. Financial Resolution and Deposit Insurance Bill), but still there is every reason to prioritise the restoration of health of banking sector.

Conclusion-

The recent report of RBI on banking sector have shown the growing concerns that Indian banking system facing due to worsening asset quality. Though many reforms are underway, but there is urgent need to undertake various systemic reforms to strengthen the health of Indian banking sector. 


Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.