Economic Survey 2018: Bankruptcy code improving health of banking amid subdued performance

A customer uses his card to withdraw money from an ATM (Reuters)

The Economic Survey has said that the new Insolvency and Bankruptcy code (IBC) is helping improve the health of banking sector despite the fact that the banks, especially public sector banks (PSBs), has remained subdued in the current financial year.

“An ecosystem for the new insolvency and bankruptcy process took shape in 2017-18. The IBC mechanism is being used actively to resolve the NPA problem of the banking sector,” the survey has said. The Code prescribes strict time limits for various procedures under it.

On the health of the banking sector, the survey pointed out that the gross Non-Performing Advances (GNPA) ratio of Scheduled Commercial Banks (SCBs) increased from 9.6 percent to 10.2 percent between March 2017 and September 2017.

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Non Food Credit (NFC) grew at 8.85 percent Y-o-Y in November 2017 as compared to 4.75 percent in November 2016. Bank credit lending to Services and Personal Loans (PL) segments continue to be the major contributor to overall NFC growth.

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

During 2017-18 (April-November) there was 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 G-sec yield, meanwhile, has hardened since September 2017. The G-sec yield as on January 11, 2018 stands at 7.26 percent.

The Survey highlighted that monetary policy has remained steady with only one policy rate cut in August, during 2017-18 (till January), and that liquidity conditions have remained stable during the past 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,” the Survey said.

The survey has pointed out that in third bi-monthly Monetary Policy Statement for 2017-18 in August 2017, the Reserve Bank of India’s Monetary Policy Committee decided to reduce the policy Repo Rate by 25 basis points to 6.0 percent. It kept the rates unchanged in both October and the latest meeting held in December.

Here is the Full Text of Economic Survey 2017-2018