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Highlights of RBI Annual Report 2020-21; Fall in Bank Fraud, Rise in Forex Earning, Increased Surplus

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COVID second wave triggers raft of growth forecast revisionsOn May 27, 2021, the Reserve Bank of India (RBI) released its Annual Report for 2020-21, a statutory report of its Central Board of Directors, which covers the working and functions of the RBI for the transition period of 9 months (July 2020 – March 2021).

Note – To make the Accounting year equivalent to Financial year, the accounting year of RBI was changed from July – June to April – March.

Growth – Due to the onset of the second wave of COVID-19, RBI has stated a raft of revisions to growth projections of FY22 towards the RBI’s earlier projection of 10.5 percent (26.2 percent in Q1, 8.3 percent in Q2, 5.4 percent in Q3 and 6.2 per cent in Q4)

About the RBI’s Annual Report 2020-21 in Brief:

-Balance Sheet of RBI:

i.The balance sheet of RBI increased by 6.99 percent /Rs 3,72,876.43 crore, from Rs 53,34,792.70 crore (June 30, 2020) to Rs 57,07,669.13 crore (March 31, 2021).

ii.RBI’s gains from foreign exchange transactions rose by 69 percent from Rs 29,993 crore to Rs 50,629 crore in 2020-21.

iii.RBI’s Annual Account:

FY20    July 2020-March 2021
Income(Decreased by 10.96 percent) Rs 149,672 crore Rs 133,272 crore
Total Expenditure (Decreased by 63.10 percent) Rs 92,540.93 crore Rs 34,146.75 crore
Surplus transferred to government

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Rs 57,127.53 crore Rs 99,122.00 crore

iv.The increase in asset size is mainly through an increase in foreign and domestic investments by 11.48 percent and 13.75 percent.

v.On the liability side, the increase was due to an increase in Deposits, Notes Issued and Other Liabilities by 26.85 per cent, 7.26 per cent and 43.05 percent

-Bank Fraud in 2020-21 Fell by 25%:

i.In 2020-21, Bank Fraud in terms of value (Rs 1 lakh and more) decreased by 25 percent to Rs 1.38 trillion and fraud in terms of numbers decreased by 15 percent.

ii.Public sector banks (PSBs) share of fraud in 2020-21 was decreased from FY20, it contributed about 59 percent (₹81,901 crores) of total fraud (FY20 – PSBs share is 80%), whereas the Private Sector Banks share increased from FY20.

iii.Foreign banks and financial institutions’ share in fraud stood at 2.4 percent and 4.9 percent, respectively.

-Points to be noted over the report:

i.Consumer price index(CPI) inflation: RBI expected it to an average of 5 percent during 2021-22 with 5.2 per cent in Q1and Q2, 4.4 percent in Q3, and 5.1 percent in Q4.

ii.In its February 2021 estimates, the National Statistical Office (NSO) estimated that the real GDP of 2021 to be contracted by 8.0 percent (the first contraction since 1980-81 and the severest since national accounts have been compiled in India).

iii.The total support announced by RBI for the economy from February 6, 2020, to May 5, 2021, amounted to Rs 15.7 lakh crore (8.0 percent of 2020-21 nominal GDP).

iv.India’s stimulus measures including liquidity and other measures taken by RBI lead to 15.7 percent of GDP.

v.Gross Fiscal Deficit (GFD) is reported by government at 6.8 percent of GDP in 2021-22 – down from 9.4 percent in FY20 – has brought it down gradually to below 4.5 percent of GDP by 2025-26.

vi.The government has approved an advance of Rs 4,500 crore to vaccine manufacturers to ramp up the production of vaccines.

vii.GST collections – (April and early May 2021) the Goods and services tax (GST) collections crossed the Rs 1 lakh crore mark for the seventh consecutive month in April 2021 and marked the highest level on record.

-Report on Notes in Circulation: 

i.Due to the precautionary holding of cash by the public (due to COVID-19), a higher than average increase in banknotes in circulation was witnessed in 2020-21.

ii.The value and volume of banknotes in circulation increased by 16.8 per cent and 7.2 per cent, respectively, during 2020-21, as against an increase of 14.7 per cent and 6.6 per cent, respectively, witnessed during 2019-20.

iii.The share of Rs 500 and Rs 2,000 banknotes together accounted for 85.7 percent against 83.4 percent as on March 31, 2020. (Rs 500 denomination – highest share, 31.1 percent and Rs 10 denomination – 2nd highest, 23.6 per cent)

iv.Counterfeit banknotes in 2020-21 – Out of the total Fake Indian Currency Notes (FICNs) detected in the banking sector, 3.9 percent were detected at the RBI and 96.1 percent by other banks.

-Global Economy Report:

i.The global economy is projected to grow at 6.0 percent in 2021 by the International Monetary Fund (IMF) in its April 2021 World Economic Outlook.

ii.In 2020, global output fell into its steepest contraction since the Great Depression at (-) 3.3 percent, with advanced countries’ GDP down by 4.7 percent and that of emerging and developing countries (EMDEs) by 2.2 per cent.

iii.World trade volume of goods and services shrank by 8.5 percent and Crude prices declined by close to 33 percent in 2020.

-RBI flags risk of a bubble in Indian equity markets

i.RBI poses the risk of a bubble, due to a sharp rise in the domestic equity markets despite an estimated 8 percent contraction in GDP in 2020-21.

ii.RBI noted a record high rise in India’s equity prices with the benchmark index (Sensex) crossing the 50,000 mark on January 21, 2021, to touch a peak of 52,154 on February 15 (which represents a 100.7 percent increase since March 23, 2020, and a 68.0 percent increase over the year 2020-21).

-Credit Support against COVID-19

RBI reported about the comprehensive Credit Support Measures Against the Second wave of COVID-19 viz, Term Liquidity Facility of Rs 50,000 crores to Ease Access to Emergency Health Services, Resolution Framework 2.0, Rationalisation of Compliance to KYC Norms, ect. Click here to know more

-Close monitor over Asset quality

After the Supreme Court lifted the interim stay on classifying non-performing assets (NPA) in March 2021, RBI has cautioned banks to have a close monitor over the asset quality and need to show the true picture of bad loans after. It estimates the bad loan ratio of banks to 13.5 percent under the baseline stress scenario by September 2021.

Recent Related News:

In accordance with the internal report from the RBI namely ‘Report on Currency and Finance (RCF) for the year 2020-21′′ on the theme “Reviewing the Monetary Policy Framework”, India’s medium-term inflation target of 4% with a +/-2 % tolerance band is appropriate for the country.

In a first, RBI is all set to conduct the simultaneous purchase and sale of Government securities (GS) under Open Market Operations (OMO) for an aggregate amount of Rs 20,000 crore under a purchase and Rs 15,000 crore under sale on March 10, 2021.

About Reserve Bank of India(RBI):

Established – 1st April 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors –  Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar