26th Financial Stability Report (FSR)

26th Financial Stability Report (FSR)

·         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. 

Major 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).

Challenges 

·         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.