RBI releases the 26th issue of the Financial Stability Report 2022

The Reserve Bank of India on Thursday (December 29) released the 26th issue of the Financial Stability Report (FSR).

The financial Stability Report (FSR) is a biannual report released by the Reserve Bank of India (RBI). The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as well as the resilience of the financial system.

As per the latest report, the country’s financial system remains stable despite weakening domestic growth despite the risks from global economic uncertainties and geopolitical developments.

Highlights of FSR 2022 December:

The global economy is facing formidable headwinds with recessionary risks looming large. The interplay of multiple shocks has resulted in tightened financial conditions and heightened volatility in financial markets.

The Indian economy is confronting strong global headwinds. Yet, sound macroeconomic fundamentals and healthy financial and non-financial sector balance sheets are providing strength and resilience and engendering financial system stability.

Bank loan growth has been continuously increasing and is already in the double digits. ‘Buoyant demand for bank credit and early signs of a revival in investment cycle are benefiting from improved asset quality, return to profitability and strong capital and liquidity buffers of scheduled commercial banks (SCBs)’, it sad.

Regarding non-performing assets (NPA) of the banking system, the report says that the Banks have lowered the GNPA ratio through recoveries and write-offs. The slippage reductions and asset quality has improved, with the GNPA ratio falling to a seven-year low of 5.0 per cent and net non-performing assets (NNPA) have dropped to a ten-year low of 1.3 per cent in September 2022.

Stress test results presented in this issue of the FSR indicate that banks would be able to withstand even severe stress conditions, should they materialise. Macro stress tests for credit risk reveal that SCBs would be able to comply with the minimum capital requirements even under severe stress scenarios. The system-level capital to risk-weighted assets ratio (CRAR) in September 2023, under baseline, medium, and severe stress scenarios, is projected at 14.9 per cent, 14.0 per cent and 13.1 per cent, respectively.

Stress tests for open-ended debt mutual funds showed no breach in limits pertaining to interest rate, credit, and liquidity risks. The consolidated solvency ratio of both life and non-life insurance companies also remained above the prescribed minimum level.

“On the domestic front, we recognise the destabilising potential of global risks, even as we draw strength from the robust macroeconomic fundamentals of the Indian economy. The Reserve Bank and the other financial regulators remain vigilant and in readiness to ensure the stability and soundness of our financial system through appropriate interventions, whenever necessary, in the best interest of the Indian economy” said RBI Governor Shaktikanta Das in a forward to the report. He further added that “In spite of formidable global headwinds, India’s external accounts remain well-cushioned and viable”.