Recently, the Reserve Bank of India released the 24th issue of the Financial Stability Report (FSR).

Financial Stability Report:

• It is published by RBI bi-annually on behalf of the Financial Stability and Development Council, an umbrella group of regulators which gives an overview of the health of India’s financial system.
• It reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.
• The RBI looks at the state of both the global as well as domestic economy.

Key highlights of the latest report are:

• Global economic recovery has been losing momentum in the second half of 2021 in the face of resurfacing COVID-19 infections. Supply disruptions and bottlenecks, elevated inflationary levels and shifts in monetary policy stances and actions across advanced economies and emerging market economies.
• On the domestic front, progress in vaccination has enabled the recovery to regain traction after the debilitating second wave of the pandemic. The corporate sector is gaining strength and bank credit growth is improving.
• The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new peak of 16.6 percent and their provisioning coverage ratio (PCR) stood at 68.1 per cent in September 2021.
• Macro stress tests for credit risk indicate that the gross non-performing asset (GNPA) ratio of SCBs may increase from 6.9 per cent in September 2021 to 8.1 per cent by September 2022 under the baseline scenario and to 9.5 per cent under a severe stress scenario. SCBs would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions.
• They have remained resilient amidst the pandemic and stability prevails in the financial markets, cushioned by policy and regulatory support.

Source: EPIC March 2022