RBI’S FINANCIAL STABILITY REPORT, 2023

Context

• The Reserve Bank of India (RBI) recently issued its biannual Financial Stability Report.

• The report indicates enhanced asset quality in the banking system, with the Gross Non-Performing Assets (GNPA) ratio hitting a seven-year low.

What is the Financial Stability Report?

1. It's a biannual publication by RBI, assessing the nation's financial stability, incorporating inputs from all financial sector regulators.
2. The report includes a Systemic Risk Survey (SRS) where experts evaluate the financial system across Global, Financial, Macroeconomic, Institutional, and General risks.

Significance of FSR

1. Offers insights into the resilience or vulnerability of the financial system, especially banks, to economic changes.
2. It helps gauge the capacity of banks and lending institutions to support future growth.
3. High NPAs coupled with a high government fiscal deficit could pose challenges for both banks and the government.

Key Highlights of Report

1. Gross NPA: Non-Performing Assets (NPA) are delayed loans and arrears from banks or financial institutions. GNPA ratio reached a seven-year low of 5% in September 2022. Macro-stress test assessed banks' resilience to unforeseen shocks.
2. Capital to Risk (Weighted) Assets Ratio: CRAR is a bank's capital to risk-weighted assets and current liabilities ratio. The CRAR of 46 major banks is 15.8%, exceeding the 9% minimum requirement.
3. Performance of NBFCs: A Non-Banking Financial Company (NBFC) deals in loans and advances. The NBFC sector rebounded after the second Covid wave, with improving asset quality.
4. Financial Markets: Multiple shocks led to tightened financial conditions and increased volatility in financial markets.
5. Insurance Sector: Solvency ratio for life and non-life insurance companies remained above the prescribed minimum level.
6. Accelerated Credit Growth: Credit growth in the post-pandemic period has gained momentum, signifying economic recovery.

 

 

 

 

 

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