On May 30, the Reserve Bank of India (RBI) published its annual report for the fiscal year 2022-23. The report offers insights into the operations and performance of the RBI during the year, shedding light on the state of the economy as well. It serves as a comprehensive overview of the RBI’s activities and provides valuable information on the financial landscape and economic trends within the country.
The Government Deficit and Debt
According to the RBI’s annual report for 2022-23, the general government deficit and debt have shown improvement. The deficit decreased to 9.4% of GDP, down from its peak level of 13.1% in 2020-21. Similarly, the debt decreased to 86.5% of GDP from its peak level of 89.4% in 2020-21. The report acknowledges the government’s commitment to credible fiscal consolidation while emphasizing its role in stimulating the investment cycle through increased capital expenditure. This approach aims to attract private investment and enhance the economy’s growth potential.
47% Increase in RBI’s Total Income
In the fiscal year 2022-23, the Reserve Bank of India (RBI) reported a total income of ₹2.35 lakh crore, which is a significant increase of 47% compared to ₹1.6 lakh crore in 2021-22. The rise in income can be attributed to profits generated from foreign exchange (FX) sales, amounting to ₹1 lakh crore, as a result of active FX intervention by the RBI. Additionally, higher interest income of ₹1.3 lakh crore on its holdings of domestic and foreign securities offset losses incurred from liquidity operations.
The increased income has resulted in a higher dividend payment to the central government, with the RBI transferring ₹87,416.2 crores, more than double the amount transferred in the previous year. This higher dividend serves as a fiscal windfall of over ₹50,000 crore (0.17% of GDP) for the government. However, it is anticipated that this windfall will be offset by an equal amount of slippage on the fertilizer subsidy.
Lending rates are back to pre-covid levels in most sectors
From May 2022 to February 2023, the RBI’s Monetary Policy Committee (MPC) implemented a cumulative interest rate hike of 2.5 percentage points in the policy rate. This increase in rates has had a notable impact on retail lending rates, as evidenced by data on weighted average lending rates (WALR) for different types of loans. Almost all retail lending rates, except for education loans, have now surpassed the levels observed before the Covid-19 pandemic.
Specifically, the WALR for housing loans has experienced an increase of over 2 percentage points, indicating higher borrowing costs for individuals seeking housing financing. This trend reflects the RBI’s efforts to manage inflationary pressures and maintain financial stability through adjustments in policy rates.
The share of bad loans in total lending continues to fall
The annual report highlights a positive trend in the ratio of non-performing assets (NPAs) to total loans. The gross NPA as a percentage of total advances has significantly decreased from 15.5% in 2018-19 to 5.8% in the quarter ending December 2022. Although public sector banks still have relatively higher NPA ratios, they have witnessed a substantial reduction in their NPA ratios as well.
The report acknowledges the significance of loan moratorium programs, such as the Emergency Credit Line Guarantee Scheme (ECLGS), in mitigating the impact of the pandemic on the banking system. These initiatives played a crucial role in preventing a widespread accumulation of stressed assets and alleviating financial stress during the challenging times of the pandemic.
The number of bank frauds has increased but the amount involved has come down
In the fiscal year 2022-23, there were 13,530 reported cases of bank fraud involving a total amount of ₹30,252 crore. These figures represent a decrease compared to the previous year, which recorded 9,097 cases and an amount of ₹59,819 crore in bank frauds during 2021-22. Notably, frauds related to advances, including wilful loan defaults, have seen a significant decline over the past two years, reducing from ₹1.3 lakh crore to ₹28,792 crore in 2022-23.
Among the total bank frauds, approximately 70% of the amount involved occurred in public sector banks, indicating a higher concentration in this sector. Conversely, the private sector had a larger share, accounting for two-thirds of the total number of banking fraud cases. These statistics highlight the ongoing efforts to address and mitigate fraudulent activities within the banking sector, with a focus on reducing fraud incidents and associated financial losses.
FDIs are at their lowest since 2019-20
According to the provisional estimates from the RBI annual report, the total Foreign Direct Investment (FDI) in India reached a three-year low of $46 billion in the fiscal year 2022-23. This represents a decline of 26% compared to the previous fiscal year. Specifically, FDI in the manufacturing sector decreased by 30% to $11.3 billion in 2022-23 compared to the previous year. However, it is worth noting that FDI in manufacturing in 2022-23 still remains higher than the levels observed between 2018-19 and 2020-21.
The report also highlights that FDI inflows into sectors linked to the Production-Linked Incentive (PLI) scheme have not experienced significant growth since the scheme was announced. These inflows have been averaging around $4 billion in FY18 and FY19, with a sharp increase to $7.6 billion in FY20, likely due to a large investment in the automotive sector. However, this figure has now moderated to $4-5 billion again in FY22 and FY23.
The PLI scheme, which offers incentives to promote local manufacturing, has been implemented in various sectors as a means to encourage investments. The decrease in FDI and the trend in PLI-linked sectors indicate the need for further analysis and evaluation of the policies to attract foreign investment and stimulate domestic manufacturing.
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What is the annual financial year of RBI?
The Reserve Bank of India (RBI)’s annual financial year is from April 1 to March 31. The RBI’s financial year is aligned with the government’s financial year. This was done in 2020 to improve the coordination between the RBI and the government.
Prior to 2020, the RBI’s financial year was from July 1 to June 30. This was a legacy of the RBI’s founding in 1935 when the British government was the controlling authority. The British government’s financial year was from July 1 to June 30.
How many times does RBI publish a monetary policy report in a year?
The Reserve Bank of India (RBI) publishes a monetary policy report six times a year. The reports are released after each meeting of the Monetary Policy Committee (MPC), which is held at least once every two months. The MPC is responsible for setting the benchmark interest rate in India.
The monetary policy report discusses the current economic situation in India and the MPC’s decision on the benchmark interest rate. The report also discusses the MPC’s outlook for the Indian economy.