Reserve Bank Releases 27th Financial Stability Report: Indian Economy Remains Resilient

On 28th June, the Reserve Bank released the 27th issue of the Financial Stability Report (FSR), providing insights into the risks to financial stability and the resilience of the Indian financial system. The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC). Despite global uncertainties, the Indian economy and the domestic financial system continue to display resilience, supported by robust macroeconomic fundamentals.

Global Economic Environment:

Amidst banking system fragility in certain countries, geopolitical tensions, and moderating but elevated inflation, the global economy faces heightened uncertainty. These factors contribute to a challenging global economic landscape.

The Resilience of the Indian Economy:

In contrast to the global headwinds, the Indian economy remains resilient, driven by favorable macroeconomic fundamentals. The economy exhibits continuing growth momentum, moderating inflation, narrowing current account deficit, rising foreign exchange reserves, ongoing fiscal consolidation, and a robust financial system. These factors set the stage for sustained growth.

Healthy Balance Sheets and Prospects:

Healthy balance sheets of banks and corporates pave the way for a new credit and investment cycle, bringing optimism to the Indian economy. Banks have witnessed a historically high capital-to-risk-weighted assets ratio (CRAR) of 17.1% and a common equity tier 1 (CET1) ratio of 13.9% in March 2023. Additionally, the gross non-performing assets (GNPA) ratio reached a 10-year low of 3.9% in March 2023, while the net non-performing assets (NNPA) ratio declined to 1.0%.

Stress Tests and Capital Requirements:

Macro stress tests conducted for credit risk indicate that scheduled commercial banks (SCBs) would meet the minimum capital requirements even under severe stress scenarios. The system-level CRAR projections for March 2024, under baseline, medium, and severe stress scenarios, are estimated at 16.1%, 14.7%, and 13.3% respectively. These results reflect the resilience of SCBs in navigating challenging situations.

Conclusion:

The release of the 27th Financial Stability Report by the Reserve Bank underscores the resilience of the Indian economy and the strength of the domestic financial system. Despite global uncertainties, India’s robust macroeconomic fundamentals, healthy balance sheets of banks, and positive investment prospects contribute to sustained growth. The report’s findings provide valuable insights into the stability and resilience of the Indian financial system, fostering confidence in its future prospects.

27th Financial Stability Report – FAQs

Q1: What is the Financial Stability Report (FSR) released by the Reserve Bank?

Ans: The Reserve Bank publishes the Financial Stability Publication (FSR), a publication that analyses the threats to financial stability and the toughness of the Indian financial system. It represents the Sub-Committee of the Financial Stability and Development Council’s (FSDC) overall evaluation.

Q2: How do the Indian economy and the domestic financial system fare amidst global uncertainties?

Ans: The Indian economy and local banking system are robust in the face of global challenges. Strong macroeconomic fundamentals, such as continuous fiscal consolidation, a stable financial system, moderating inflation, shrinking current account deficits, growing foreign exchange reserves, and momentum in growth, provide support for them.

Q3: How do stress tests for credit risk indicate the resilience of SCBs?

Ans: The results of the stress tests show that even under the most extreme stress situations, SCBs would be able to meet the minimum capital requirements. Under the baseline, medium, and severe stress scenarios, the system-level capital-to-risk-weighted assets ratio (CRAR) predictions for March 2024 are calculated as 16.1%, 14.7%, and 13.3%, respectively.

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  • Pritipalit

    Priti Palit, an accomplished edtech writer, boasts a wealth of experience in preparing candidates for multiple government exams. With a passion for education and a keen eye for detail, she has contributed significantly to the field of online learning. Priti's expertise and dedication continue to empower aspiring individuals in their pursuit of success in government examinations.

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