{"id":303614,"date":"2024-07-06T19:00:10","date_gmt":"2024-07-06T13:30:10","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=303614"},"modified":"2024-07-06T19:40:29","modified_gmt":"2024-07-06T14:10:29","slug":"rbis-financial-stability-report-key-highlights-and-risks-explained-pointwise","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rbis-financial-stability-report-key-highlights-and-risks-explained-pointwise\/","title":{"rendered":"RBI’s Financial Stability Report- Key Highlights and Risks- Explained Pointwise"},"content":{"rendered":"

The Reserve Bank of India (RBI) recently released its Financial Stability Report<\/span> (FSR<\/span>) for June 2024. The report provides a comprehensive assessment<\/span> of the resilience<\/span> and stability of India’s financial system<\/span>. According to the report, global financial system faces major risks<\/span> such as alarming levels of public debt, frequent geopolitical conflicts, and increasing economic and financial fragmentation. Amidst these global headwinds, the Indian economy is exhibiting strength and resilience<\/span>, with strong macroeconomic fundamentals and buffers.<\/p>\n\n\n\n\n
Table of Content<\/strong><\/td>\n<\/tr>\n
What is the Financial Stability Report released by the RBI?<\/a>
\nWhat are the key highlights of the Financial Stability Report?<\/a>
\nWhat are the risks highlighted by the Financial Stability Report?<\/a>
\nWhat are the RBI initiatives for the stability of the Indian Financial System?<\/a>
\nConclusion<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What is the Financial Stability Report released by the RBI?<\/strong><\/span><\/h2>\n

Financial Stability Report-<\/strong><\/p>\n\n\n\n\n\n
Released By\u00a0<\/strong><\/td>\nFinancial Stability Report is released by the RBI<\/span>. It is published twice a year<\/span>. It reflects the collective assessment<\/span> of the Sub-Committee<\/span> of the Financial Stability and Development Council<\/span> (FSDC – headed by the Governor of RBI) on risks to financial stability and the resilience of the financial system.<\/td>\n<\/tr>\n
Details of the Report<\/strong><\/td>\nThe Financial Stability Report details the state of financial stability<\/span> in the country. It is prepared after taking into account the contributions<\/span> from all the financial regulators.<\/td>\n<\/tr>\n
Risk assessment<\/strong><\/td>\nRBI conducts a Systemic Risk Survey<\/span> (SRS) as part of the FSR. The opinions of the experts<\/span> and market participants<\/span> are taken to assess the financial system on five different types of risks<\/span>. The risks which are evaluated are Global<\/span>, Financial<\/span>, Macroeconomic<\/span>, Institutional<\/span>, General<\/span>.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What are the key highlights of the Financial Stability Report?<\/strong><\/span><\/h2>\n

In this uncertain international economic and financial environment, the Indian economy is exhibiting resilience<\/span> and remains the fastest growing major economy. Moreover, India\u2019s contribution to global growth<\/span> is rising and currently stands at<\/span> 18.5 per cent in 2023-24<\/span><\/span>.<\/span><\/p>\n

1. Indian Banking System-<\/strong><\/span> The Scheduled Commercial Banks (SCBs) have shown remarkable improvement in profitability and asset quality.<\/p>\n

a. Improved Asset Quality-<\/strong> The asset quality of SCBs recorded sustained improvement<\/span> and their GNPA ratio moderated<\/span> to a 12-year low of 2.8%<\/span><\/span> in March 2024. The decline has been observed across public, private and foreign banks.<\/p>\n\n\n\n
\n

\"NPA-1\"
Source- RBI<\/figcaption><\/figure><\/td>\n
\n

\"NPA-2\"
Source- RBI<\/figcaption><\/figure><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

b. Increased Profitability-<\/strong> The Return on assets (RoA) and return on equity (RoE) have increased to 1.3%<\/span> and 13.8%<\/span>, respectively.<\/p>\n\n\n\n
\n

\"Profitability-1\"
Source- RBI<\/figcaption><\/figure><\/td>\n
\n

\"Profitability-2\"
Source- RBI<\/figcaption><\/figure><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

c. Capital Buffers-<\/strong> The capital to risk-weighted assets ratio<\/span> (CRAR) and the common equity tier 1<\/span> (CET1) ratio stand at 16.8% and 13.9%, respectively. This is well above the regulatory minimum set by the RBI.<\/p>\n\n\n\n
\n

\"CRAR-1\"
Source- RBI<\/figcaption><\/figure><\/td>\n
\n

\"CET-1\"
Source- RBI<\/figcaption><\/figure><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

d. Positive Stress test results-\u00a0<\/strong> The stress tests conducted to gauge the strength of bank balance sheets reveal that SCBs are well capitalised<\/span> and capable of absorbing macroeconomic shocks<\/span> even in the absence of any further capital infusion by stakeholders.<\/p>\n

2. Non-Banking Financial Companies (NBFCs)-\u00a0<\/strong><\/span><\/p>\n

a. Robust Credit Growth-<\/strong> NBFCs maintained robust credit growth in 2023-24<\/span>. Personal loan growth decelerated whereas growth in loans to industry and services accelerated. Credit growth in respect of the largest category of NBFC by activity<\/span>, investment and credit companies (NBFC-ICCs), has been accelerating in the post-pandemic period
\n<\/span><\/span><\/p>\n\n\n\n
\n

\"NBFC
Source- RBI<\/figcaption><\/figure><\/td>\n
\n

\"NBFC
Source- RBI<\/figcaption><\/figure><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

b. Healthy asset quality-<\/strong> The asset quality of the Non-banking financial companies<\/span> (NBFCs) remains healthy. It has a CRAR at 26.6 per cent, GNPA ratio at 4.0 per cent and return on assets (RoA) at 3.3 per cent.<\/p>\n\n\n\n
\n

\"NBFC
Source- RBI<\/figcaption><\/figure><\/td>\n
\n

\"NBFC
Source- RBI<\/figcaption><\/figure><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What are the risks highlighted by the Financial Stability Report?<\/strong><\/span><\/h2>\n

1. Global Economic Headwinds-<\/strong><\/span> The global economy is facing heightened risks<\/span> from prolonged geopolitical tensions<\/span>, elevated public debt<\/span>, and the slow progress in the last mile of disinflation<\/span>. These headwinds pose challenges to the growth and stability of Indian Financial Sector.<\/p>\n

\"Global
Source- RBI<\/figcaption><\/figure>\n

2. Increasing Cyber Risks-<\/strong> With increasing digitalisation of financial services<\/span>, the recurring intensity of cyberattacks<\/span> has dominated financial stability concerns<\/span>. The number of publicly reported cyberattacks has been rising globally at an alarming pace<\/span>, with the share of attacks in the financial domain increasing at a rapid pace.<\/p>\n\n\n\n
\n

\"Cyber
Source- RBI<\/figcaption><\/figure><\/td>\n
\n

\"Cyber
Source- RBI<\/figcaption><\/figure><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

3. Domestic Risks-<\/strong> Disruption of supply-chain conditions<\/span>, rise in commodity prices<\/span>, slack in the rural economy<\/span> and uncertainties related to weather conditions<\/span> are the prominent domestic risks to the Indian Financial Sector.<\/p>\n

4. Interconnectedness and Contagion Risk-<\/strong> Due to increasing interconnectedness, the share of interbank exposures<\/span> in the total assets of the banking system<\/span> has reached a 3-year peak in September 2023. This makes the Indian financial system susceptible to contagion risk<\/span>.<\/p>\n

5. Risks in the Unsecured Retail Loan Segment-<\/strong> There has been a rapid growth in the unsecured retail loan segment. It has seen 23% growth in the last two years compared to 12-14% overall credit growth<\/span>. This growth in the unsecured loan segment creates substantial risks for the stability of Indian financial sector.<\/p>\n

<\/a>What are the RBI initiatives for the stability of the Indian Financial System?<\/strong><\/span><\/h2>\n

The RBI has taken several measures to address the risks highlighted in the latest Financial Stability Report.<\/p>\n\n\n\n\n\n\n\n
Strengthening Banks’ Internal Surveillance<\/strong><\/td>\nThe RBI has advised banks and NBFCs to strengthen their internal surveillance mechanisms<\/span> to address the build-up of risks in the rapidly growing unsecured retail loan segment<\/td>\n<\/tr>\n
Revised Prudential Framework on Stressed Assets<\/strong><\/td>\nThe revised prudential framework on stressed assets issued by the RBI on June 7, 2019 extends the stressed asset resolution framework<\/span>. It also builds in incentives for early adoption of a resolution plan<\/span>.<\/td>\n<\/tr>\n
Large Exposures Framework<\/strong><\/td>\nRBI introduced a revised large exposures framework (LEF) to address counterparty concentration risk<\/span> in the banking sector.<\/td>\n<\/tr>\n
Supervisory Mechanism for Banks<\/strong><\/td>\nRBI has recently reviewed the structure of supervision<\/span> in the context of the growing diversity, complexities and interconnectedness within the Indian financial sector.<\/td>\n<\/tr>\n
Dedicated Cloud Facility<\/strong><\/td>\nThe RBI announced the establishment of a dedicated cloud facility for the financial sector in India to help banks and financial entities manage the ever-increasing volume of data<\/span>.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>Conclusion<\/strong><\/span><\/h2>\n

The regulators<\/span>, including the Reserve Bank, must remain committed<\/span> to promote innovation, financial inclusion, efficient payment and settlement systems, and a robust financial system.<\/p>\n

All stakeholders must invest adequately<\/span> to take full advantage of technological advancements like Artificial Intelligence. However, they must also take steps to safeguard the security and soundness<\/span> of their systems.<\/p>\n

Efforts must be made to develop an ecosystem that puts the interests of the customer at the forefront<\/span>. Ultimately,the preservation of the trust of the customer is the cornerstone of safeguarding systemic stability.<\/p>\n\n\n\n
Read More- The Indian Express<\/a>
\nUPSC Syllabus- GS 3 Indian Economy<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

The Reserve Bank of India (RBI) recently released its Financial Stability Report (FSR) for June 2024. The report provides a comprehensive assessment of the resilience and stability of India’s financial system. According to the report, global financial system faces major risks such as alarming levels of public debt, frequent geopolitical conflicts, and increasing economic and… Continue reading RBI’s Financial Stability Report- Key Highlights and Risks- Explained Pointwise<\/span><\/a><\/p>\n","protected":false},"author":10357,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,1],"tags":[],"class_list":["post-303614","post","type-post","status-publish","format-standard","hentry","category-7-pm","category-uncategorized","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/303614","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10357"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=303614"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/303614\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=303614"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=303614"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=303614"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}