The Twenty Fourth issue of the Financial Stability Report (FSR) has been released by the Reserve Bank. The report is significant as it measures the financial stability of the system from Banking Regulator perspective. RBI has specialised committee for evaluating the systemic risk. Sub-Committee of the Financial Stability and Development Council (FSDC) is entrusted with the task of assessing the threats to financial stability and the resilience of the financial systems.
In the second half of 2021, the global economic recovery has slowed due to resurfacing COVID-19 infections, the new variation Omicron, supply disruptions and bottlenecks, increased inflationary levels, and changing monetary policy positions and actions in advanced and developing market nations.
On the domestic front, Government has taken a commendable initiative to vaccinate the majority of population which has allowed the economy to get back on the track following the severe second wave of the pandemic. RBI is of the view that despite recent signs of sluggishness the corporate sector is strengthening and bank credit growth has started to improve.
In September 2021, the capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) has increased and reached a high of 16.6%. during the same period provisioning coverage ratio (PCR) was 68.1 %.
According to macro stress tests performed by RBI for ascertaining the credit risk, the gross non-performing asset (GNPA) ratio of SCBs could rise from the level of 6.9% during September 2021 to 8.1 % till September 2022. These figures of GNPA are under the baseline scenario. Under the severe stress scenario, it can go up to 9.5 %. SCBs, on the other hand, would have sufficient capital, both aggregately and individually, even under stress.
Emerging indicators of stress in the micro, small, and medium enterprise (MSME) sector, as well as the micro financing sector, demand that these portfolios be closely monitored in the future.
According to Governor Mr Shaktikanta Das Financial institutions in India have been robust in the face of the pandemic, and financial markets have remained stable due to strong Regulatory Policies. As evidenced by the stress tests reported in the RBI Report, bank balance sheets have remained strong. Further capital and liquidity buffers are being increased for cushioning future shocks. It is imperative for the Financial markets to have strong tech infrastructure, data security, rules and processes especially in the face of recurrent and potentially debilitating cyber-attacks.
A strong, well-functioning, and responsive financial sector strengthens the basis of modern societies’ growth and development. While the pandemic has caused some volatility, spillovers, and increased uncertainty, the Indian financial system has held up well and remains well positioned to handle the economy’s funding needs.
Thought the NPA’s are expected to increase, The Banking Regulator is committed to ensure a robust and strong financial system for supporting strong, sustainable and inclusive growth, whilst maintain the financial stability.
Bureau Galactik Views