RBI Releases Financial Stability Report – Free PDF Download

WHAT  IS  FINANCIAL  STABILITY  REPORT?

• RBI has released 20^th issue of the Financial Stability Report.
• It is a biannual exercise. (not biennial)

• It reflects the collective assessment of the Sub-  Committee of the Financial Stability and  Development Council (FSDC) on risks to  financial stability.

WHAT  IS  FSDC?

• First mooted by the Raghuram Rajan Committee in 2008.

• Finally in 2010, the then Finance Minister, Pranab Mukherjee,  decided to set up such an autonomous body dealing with- Macro prudential and financial regularities.

HIGHLIGHTS  OF  THE  REPORT

• Banks
• NBFCs And HFCs
• Fraud Reporting Rises
• Perception Of Risk

BANKS

• Credit growth of scheduled commercial banks has slowed to 7% in September 2019 from 13.2% in March 2019.
• Capital adequacy  has  improved  after  the  recapitalisation  of  state-run lenders.
• Gross non-performing  assets  in  system  may  rise  to  9%  in  September 2020 from 9.1%.
• This is due to the change in the macroeconomic scenario.

NBFCS  AND  HFCS

• Recent developments  in  the  sector  have  brought  greater  market discipline.
• NBFCs and HFCs, are now relying more on long-term bank loans for their funding.
• Bad loan  ratio  for  NBFCs  increased  to  3%  in  September  2019, compared with 6.1% in March 2019.

FRAUD  REPORTING  RISES

• Banks reported  frauds  worth  Rs  13  lakh  crore  in  the  first  half of 2019-20.
• However, there is significant time lag in reporting of frauds by banks.
• It said  that  3  percent  of  the  frauds  reported actually  occurred in previous years.

PERCEPTION  OF  RISK

• The RBI noted that perception of domestic growth, fiscal, corporate sector and asset quality risks for banks increased  between April and October.
• Majority felt that prospects of the banking sector are going to improve marginally in the next one year with resolutions under  the Insolvency and Bankruptcy board playing a key role.
• 25% of the respondents feel that banking prospects will deteriorate marginally in the next on year.
• Spillovers from trade war and the geopolitical tensions may impact the market.
• Stock market correction and a possible deterioration in collateral values are seen as
• important risks to financial  market stability.

CONCLUSION

• The country’s financial system remains stable despite weakening domestic growth.
• But risks persist from global economic uncertainties and geopolitical developments.

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