Chennai: “Steps taken by Indian authorities to boost capital buffers in banks and also governments in State-owned banks have had positive impact,” said head of Monetary and Capital Markets at the IMF, Anna Ilyina.
“The level of capitalisation of some banks, particularly government-owned banks should be bolstered. This is also one of the recommendations of the Financial Sector Assessment Program for India that took place fairly recently,” she said.
These comments came at the release of the multilateral institution’s April Global Financial Stability Report (GFSR) as part of the World Bank IMF Spring Meetings.
“In particular we’ve seen average price-to-book ratios for Indian banks improving somewhat and the institutional mechanisms for resolution and recognition of NPLs are, of course, extremely important…and, I think authorities should continue working along these lines,” Ilyina said.
“India has a high stock of non-performing assets (NPAs) and (although) there has been some progression, further progress is welcome,” said head of Monetary and Capital Markets at IMF, Tobias Adrian.
The GFSR provides an assessment of balance sheet vulnerabilities across financial and non-financial sectors in advanced and emerging market economies.
The report said, portfolio flows to emerging markets are influenced by benchmark-driven investors – 70 per cent of country allocations of investment funds are impacted by benchmark indices.
According to the report, China is likely to become more important for other emerging markets as it gets included in benchmark indices. Portfolio flows to China are expected to increase by $150 billion by 2020 due to its inclusion in a global bond index.
“Financial vulnerabilities in China remain high, and the authorities face a difficult trade-off between supporting near-term growth, countering adverse external shock, and containing leverage through regulatory tightening,” the report said.