22nd Meeting Of FSDC – Economics

Table of Contents

Recently, the 22nd meeting of the Financial Stability and Development Council (FSDC) chaired by the Finance Minister
Held through a video conference

ISSUED DISCUSSED

Market volatility
Domestic resource mobilisation
Capital flows in the country in the wake of Covid-19 pandemic
Nation-wide lockdown

Financial Stability and Development Council

A non-statutory apex council
Under the Ministry of Finance
Constituted by the Executive Order in 2010
The Raghuram Rajan committee (2008) on financial sector reforms first proposed the creation of FSDC.
Chaired by the Finance Minister
Members include the heads of all Financial Sector Regulators (RBI, SEBI, PFRDA & IRDA), Finance Secretary, Secretary of Department of Economic Affairs (DEA), Secretary of Department of Financial Services (DFS), and Chief Economic Adviser.
In 2018, the government reconstituted FSDC to include the Minister of State responsible for the Department of Economic Affairs (DEA), Secretary of Department of Electronics and Information Technology, Chairperson of the Insolvency and Bankruptcy Board of India (IBBI) and the Revenue Secretary.
FSDC sub-committee is headed by the Governor of RBI.
The Council can invite experts to its meeting if required.
The objective of FSDC is to strengthen and institutionalize the mechanism for maintaining financial stability, enhancing inter-regulatory coordination and promoting financial sector development.
It also intends to monitor macro-prudential supervision of the economy. It will assess the functioning of the large financial conglomerates.

DETAILS OF THE MEETING

The Council has noted that the Covid-19 pandemic poses a serious threat to the stability of the global financial system.
The pandemic has thrown the global economy into its worst recession since the Great Depression in the 1930s, and India is no exception.
Domestic economic growth is expected to contract for the first time in forty years in FY21 (April 2020 to March 2021).
Crisil, Goldman Sachs and Fitch Ratings have projected the Indian economy to contract 5% during the current financial year.
The Council quoted the various short term fiscal measures taken by the government and monetary measures taken by the Reserve Bank of India (RBI) to address the liquidity and capital requirements of the financial institutions to manage the economic scenario due to global pandemic.
Reviewed the liquidity and solvency position of the Non-Banking Financial Companies (NBFCs), housing finance companies and micro-finance institutions.
Moratoriums on loan payments due to pandemic induced lockdowns have put a pressure on inflows of these companies while banks have turned resistant to lend them in the wake of possible defaults.
NBFCs have also sought moratorium on their dues to banks.
It highlighted the need for the government and regulators to remain vigilant on financial conditions that could expose systemic vulnerabilities in the medium and long-term.
The government and regulators would continue to provide liquidity and capital support to domestic financial institutions.
It is expected to provide comfort to the markets, which are disturbed by the extreme volatility due to pandemic.

WAY AHEAD

More protracted slowdown may present new risks to the financial system.
There is a possibility that the current crisis may transform from a “liquidity phase” into a “solvency phase”.
Governments need to consider a range of policy tools, including efficient bankruptcy and restructuring systems, government guarantees for private investments, programmes for sector-specific government equity injections, and establishing asset management companies.
Thus, FSDC is expected to take further appropriate measures to bolster the liquidity and capital base of domestic financial institutions which would stabilize financial sectors for long term.