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Financial Stability Report

  • IASbaba
  • January 2, 2023
  • 0
Economics
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Context: Recently, the RBI’s latest Financial Stability Report (FSR) indicated that India’s banks and non-bank lenders can withstand even the worst of macro-economic stress. RBI’s stress testing models have been criticised in the past for a significant upward bias.

Highlights of the report:

  • Financial stability has been maintained.
  • Domestic financial markets have remained stable and fully functional.
  • The banking system is sound and well-capitalised.
  • The non-banking financial sector has also withstood these challenges.
  • Banks have enough capital to maintain the ratio above the minimum requirement till September 2023.
  • The decline in the capital adequacy ratio was on account of higher risk-weighted assets as lending activity picked up recently.
  • The decrease in slippages, increase in write-offs and an improvement in loan growth brought the gross non-performing assets (NPA) ratio of banks further down to a seven-year low of 5%.
  • The net NPA ratio stood at a 10 year low of 1.3%.
  • Banks will be able to maintain a common equity tier-I capital ratio above the minimum requirement of 8%.
  • There is a 41% increase in the net profit of the banks and a 10% growth in net interest income (NII).
  • India along with other emerging economies is facing several risks of:
    • Rising borrowing costs.
    • Debt distress.
    • Elevated levels of inflation.
    • Volatile commodity prices.
    • Currency depreciation.
    • Capital outflows.

Source: Indian Express

Previous Year Question

Q.1) With reference to the Indian economy, consider the following statements:

  1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
  2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
  3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.

Which of the statements given above are correct? (2022)

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3

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