Sansad TV Perspective: Financial Stability Report

In the series Sansad TV Perspective, we bring you an analysis of the discussion featured on the insightful programme ‘Perspective’ on Sansad TV, on various important topics affecting India and also the world. This analysis will help you immensely for the IAS exam, especially the mains exam, where a well-rounded understanding of topics is a prerequisite for writing answers that fetch good marks.

In this article, we feature the discussion on the topic: Financial Stability Report.

Anchor: Tina Jha

Participants: 

• Dr Ashok K. Nag, Former Advisor, RBI
• Prof. Charan Singh, CEO, Egrow foundation
• Dilip Chinoy, Former Secretary General,  FICCI

Context: The Reserve Bank of India has recently released the Financial Stability Report, highlighting the key points in the economy.

Detail:

What is Financial Stability Report?

• The RBI has released the 26th edition of the Financial Stability Report.
• It is published biannually and includes contributions from all the financial sector regulators. 
• It is a report released by the RBI reflecting upon the state of economy, highlighting various challenges and remedial measures to counter any potential challenges. 
  • Accordingly, it reflects the collective assessment of the Sub Committee of the Financial Stability and Development Council (FSDC-SC) on risks to stability of the Indian financial system.

Highlight of this year’s report: 

• The gross non-performing assets (GNPA) ratio, which declined to a seven-year low of 5 per cent in September 2022, is expected to further improve to 4.9 per cent by September 2023. The GNPA ratio of all banks may improve from 5 per cent in September 2022 to 4.9 per cent by September 2023
  • Gross Non Performing Asset is the absolute amount that shows the total value of loans for a bank that are due within the 90 day-period in a particular quarter or financial year.
• The report said gross non-performing assets (GNPA) ratios of 
  • Public sector banks (PSBs) may swell from 6.5 per cent in September 2022 to 9.4 per cent in September 2023, 
  • For  private sector banks it would go up from 3.3 per cent to 5.8 per cent (PVBs) and 
  •  For Foreign Banks it would go up from 2.5 percent to 4.1 percent.
• The aggregate Capital to Risk Weighted Assets Ratio (CRAR) of 46 major banks is projected to slip from 15.8 per cent in September 2022 to 14.9 per cent by September 2023.
  • The capital-to-risk weighted assets ratio is also known as the capital adequacy ratio. The ratio measures a bank’s financial stability by measuring its available capital as a percentage of its risk-weighted credit exposure.
  • It may go down to 14 per cent in the medium stress scenario and to 13.1 per cent under the severe stress scenario by September 2023, but it stays well above the minimum capital requirement, including capital conservation buffer (CCB) requirements, which is 11.5 per cent.

India’s preparation in this respect: 

• There has been a consistent plunge in the NPAs of the banks which would enable them to take on any challenges that may come in the future. 
• At the same time, India has sufficient back up in the form of FOREX reserve, which would enable India to rise up to any challenges. 
• India has been making huge capital expenditure in infrastructure and allied sectors. It will enable India to generate enormous returns in the future. It will also project India as one of the most attractive destinations for investment in the coming time. 
• Though India’s CAD (Current Account Deficit) has widened from 1.2 per cent in Q1FY23 to 4.4 per cent in Q2, the Financial Stability Report (FSR) takes comfort from buoyant services exports and remittances. 
• Remittances inflow is expected to show positive growth, this would provide an additional window of opportunity. 

Read all the previous Sansad TV Perspective articles in the link.

Sansad TV Perspective: Financial Stability Report:- Download PDF Here