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:
- If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
- If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
- 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 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3