Related Topic in KAS Prelims Syllabus:
Economy [Paper-II]: Structure of Indian Banking and Non- Banking Financial Institutions and reforms
Reserve Bank of India released the 20th issue of the Financial Stability Report (FSR).
About the Report
- The Report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system.
- The bi-annual Report also discusses issues relating to development and regulation of the financial sector.
Overall assessment of systemic risks
- India’s financial system remains stable notwithstanding weakening domestic growth.
- The resilience of the banking sector has improved following recapitalisation of public-sector banks by the government, which aims to infuse 70,000 crore into state-owned banks this fiscal.
Global and domestic macro-financial risks
- Factors such as a delay in Brexit deal, trade tensions, whiff (a smell that is only smelt briefly or faintly) of an impending recession, oil-market disruptions and geopolitical risks caused uncertainties, leading to a significant deceleration in growth.
- These uncertainties weighed on consumer confidence and business sentiment, dampened investment intentions and unless properly addressed are likely to remain a key drag on global growth.
- The revival of twin engines of India’s economic growth — private consumption and investment — while being vigilant about the events and developments taking place in global financial markets remains a critical challenge.
- Aggregate demand has slumped in the second half of the current financial year ending March 2020, adding to an already slowing economic growth.
- While the outlook for capital inflows remains positive, India’s exports could face headwinds in the event of sustained global slowdown.
- Current account deficit is likely to be under control reflecting muted energy price outlook.
Financial Institutions: Performance and risks
- Gross Non-Performing Asset (GNPA) ratio of Public Sector Banks (PSBs) is expected to increase from 9.3% in September 2019 to 9.9% by September 2020, primarily due to change in macroeconomic scenario, marginal increase in slippages and the denominator effect of declining credit growth.
- Provision Coverage Ratio (PCR) of all banks rose to 61.5% in September 2019 from 60.5% in March 2019, implying increased resilience of the banking sector.
- Credit growth for the overall banking sector took a hit amid the slowdown. Credit growth remained subdued at 8.7% year-on-year in September 2019. However, private banks witnessed a double-digit credit growth of 16.5%.
Financial sector: Regulation and developments
- Reserve Bank has initiated policy measures: to introduce a liquidity management regime for NBFCs; to improve the banks’ governance culture; for resolution of stressed assets and for the development of payment infrastructure.
- The issue of bad loans, which slowed the performance and growth of private, public-sector banks and even non-banks, has largely been tackled under the Insolvency and Bankruptcy Code (IBC).
[Source: Livemint, rbi.org]