Financial Stability Report of Reserve Bank of India

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Financial Stability Report of Reserve Bank of India

Financial Stability Report of Reserve Bank of India

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The Reserve Bank has published the 22nd edition of the Financial Stability Report. This report highlights the financial system’s resilience in the context of the collective evaluation of the Financial Stability and Development Council sub-committee related to the risks of financial stability, and contemporary issues related to the development and regulation of the financial sector.

Financial Stability Report:

The Financial Stability Report (FSR) is a biannual publication of the Reserve Bank of India, which presents an overall assessment of the stability of India’s financial system. It also discusses issues related to the development and regulation of the financial sector.

Key findings of the 22nd Financial Stability Report:

  • Positive news on the development of the vaccine has bolstered optimism over the prospects, although it has been hurt by other waves of the virus, including more infectious strains.
  • The performance parameters of the banks have improved considerably, supported by the regulatory regime provided in response to the COVID-19 epidemic.
  • The capital ratio of the risk-weighted assets of scheduled commercial banks (CRAR) increased from 14.7 per cent in March 2020 to 15.8 per cent in September 2020, while their gross non-performing asset (GNPA) ratio decreased from 8.4 per cent to 7.5 percent and Provision Coverage Ratio (PCR) increased from 66.2 percent to 72.4 percent.
  • Macroeconomic stress tests incorporating First Advance Estimates of Gross Domestic Product (GDP) for 2020-21, released on January 7, 2021, indicate that the GNPA ratio of all scheduled commercial banks under the baseline scenario is 7.5 percent in September 2020, may rise to 13.5 percent in September 2021 and the ratio may increase to 14.8 percent under a severe stress scenario. This highlights the need for proactive construction of sufficient capital to withstand a possible deterioration in asset quality.
  • Network analysis shows that there has been a slight increase in total bilateral exposure among entities in the financial system for the quarter ended September 2020. With the shrinking of the inter-bank market and better capitalization of banks, there has been a decline in pseudo-risk to the banking system compared to March 2020 under different scenarios.

Financial Stability and Development Council (FSDC):

The Financial Stability and Development Council was formed in December 2010. Its objective is to strengthen and institutionalize the mechanism to maintain financial stability.

Promote coordination between various regulatory bodies and encourage the development of the financial sector. The Council is headed by the Union Finance Minister.

Source – The Hindu

 

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