The Reserve Bank today said the global banking system is fraught with many uncertainties due to the ongoing sovereign debt crisis in Eurozone and asked for concerted action from both the developed and the emerging economies for its revival.

"The near-term outlook for the global banking system is fraught with many uncertainties, some of which are beyond its direct control," the Reserve Bank of India (RBI) said in its report titled 'Trend and Progressof Banking in India 2010-2011'.

Elaborating on the risks faced by the global financial system, the central bank said downside risks and challenges outweigh the positive efforts towards revival.

"The downside risks are manifold and arise not just from within the banking system but also from the financial system in general, fiscal conditions and state of the global economy," the report said.

It, however, noted the fact that there was a marginal improvement in capital adequacy and profitability of the global banking system in 2010-11.

The RBI also pointed out that global financial system, which had faced a crisis in 2008-09 due to mortgage loan defaults in the US, is still vulnerable to various downside risks.

"The global banking system, however, stands weak on many counts after the crisis (US mortgage). First, the system as a whole and most advanced economies, especially the fiscally strained economies in the Eurozone, still show very weak credit growth," the report said.

It added that the ongoing sovereign debt crisis in Eurozone has created credit, market and funding risks in these economies.

"Onset of sovereign debt pressure since early 2010 have given rise to renewed credit, market and fundingrisks in the eurozone economies with troubled sovereigns, as well as the peripheral economies of Germany, France and the UK, whose banks are either directly or indirectly exposed to these sovereigns," the apex bank said.

The report added that despite attempts of deleveraging by the global banks, leverage ratio is still very high for them.

It added, "While growth and soundness of banks in advanced economies are at a low, the credit growth in emerging economies has been high leading to concerns about overheating of these economies." 

It added that high levels of inflation coupled with increasing short-term capital flows into these economieshave further raised concerns about financial stability.(PTI)