5 Key Takeaways from RBI’s Annual Report

Every year, the Reserve Bank of India (RBI) has releases an annual report that assesses its operations over the past year as well as the prospects of the economy for the future. If you have avoided reading the report because of the complex financial jargon, here are five key takeaways for you:

Here are five key takeaways from RBI’s annual report:

A sharp increase in RBI earnings

The RBI Annual Report states that it earned a bumper profit of Rs.1.23 Lakh crore for FY2018-19. This is a major spike from the surplus of Rs. 50,004 crore it earned last year. This indicates surplus liquidity with the banking system, which might be bad news for the bond market. Therefore, bond investments might become less attractive. But on the other hand, there is high volatility in the equity markets as indicated by the Volatility Index (VIX) figures. So, you may want to invest in a safe proportion of debt to stabilize your portfolio.

Related read: What can you learn by tracking bond yield movements?

Cyclical slowdown

At 5.01%, the April-May quarter saw the slowest growth in Gross Domestic Product (GDP) in the past 25 quarters. The growth slowdown was due to insufficiency of demand in consumption driven sectors like manufacturing, trade, hospitality, construction, communication and broadcasting. But on the upside, the RBI has said that the ongoing deceleration in growth is only cyclical in nature. A rise in consumption demand and private investments can lead to economic recovery. This is the highest priority for FY2019-20.

Related read: Forward-looking statements and stock markets: How are they related

Growth in electronics industry

The electronics industry is one of the fastest growing industries worldwide. However, the domestic production of electronic goods is only able to meet around one-third of the domestic demand. This leaves a significant portion of the demand to be met by imports. With this situation in focus, the government has taken several measures like infrastructure upgradation and tariff structure rationalisation to make the Indian electronic manufaturers more competitive. The long-term goal is to not only meet the domestic demand but also turn into a leading global exporter of electronics.

Related read: Policy change at Bharat Electronics: Should stock investors worry?

Rise in liquidity

The currency in circulation in the Indian economy has leaped by as much as 17% to Rs. 21 lakh crore in FY2018-19. This is higher than the currency levels before demonetization. The Rs. 500 bill accounts for 51% of the total currency in circulation and the demand for it is very high. So any talk that a liquidity crunch has caused a slowdown in the economy is simply not true.

NBFC credit crisis

In the aftermath of the IL&FS crisis, credit funding by Non Banking Financial Companies (NBFCs) to the commercial sector fell by 20%. There has been significant credit and liquidity stress in the NBFC sector over the past year. But going forward, the RBI has said that it would take steps to strengthen the liquidity and regulatory framework for NBFCs.

Related read: How to read RBI’s monthly bulletin

One related number : 5%

The latest RBI annual report has stated that India’s GST (Goods and Services Tax), the collection has missed its target. This has led to the GDP growth rate slip to 5%, for FY20 first quarter. Sluggish consumer demand, rising number of NPAs (Non-Performing Assets) and the recent crisis in the automobile and manufacturing sector has led to lower economic growth.

Related links:

  • RBI report: Record profit transfer to government, but contingency fund falls Read more
  • Slow GDP growth to hit GST, tax revenues; RBI surplus transfer to provide cushion Read more

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