The Reserve Bank of India (RBI) released the 28th edition of Financial Stability Report (FSR) on 28th Dec, 2023. According to the report Indian financial system is resilient enough to face global challenges. This FSR report was compiled and written after thorough evaluation conducted by the Financial Stability and Development Council's Subcommittee (FSDC) of the RBI. It emphasizes that India economy has solid fundamentals which will allow it to weather the storm in the global order. Following were the key highlights of the report:
According to the RBI's FSR, the world economy is dealing with a number of issues, such as geopolitical tensions, growing public debt, economic fragmentation, and slower growth. But thanks to strong macroeconomic data, sound bank balance sheets, moderate inflation, and a growing external sector, the Indian economy is comparatively stable.
The RBI's portrayal of the Indian banking industry is comforting. According to the report, the capital adequacy ratio of Scheduled Commercial Banks (SCBs) is in good condition. As of September 2023, SCBs had a 16.8% Capital to Risk-Weighted Assets Ratio (CRAR) and a 13.7% Common Equity Tier 1 (CET1) ratio. Additionally, SCBs' asset quality keeps getting better. During the same time period, Net Non-Performing Assets (NNPA) decreased to 0.8% and Gross Non-Performing Assets (GNPA) to a multi-year low of 3.2%.
The macro stress tests carried out by RBI demonstrated the SCBs' resilience to a range of economic conditions. Even though they are under extreme stress, the system-level CRAR is predicted to stay above regulatory minimums in September 2024, hitting 14.8%, 13.5%, and 12.2% in baseline, medium, and severe stress scenarios, respectively.
The Non-Banking Financial Companies (NBFCs) industry has also shown indications of improvement, according to the RBI's FSR. As of September 2023, their CRAR was 27.6%, their GNPA ratio was 4.6%, and their return on assets (RoA) was 2.9%. This suggests that the financial situation is solid.
The global environment presents challenges, which the RBI has acknowledged; however, the FSR expresses optimism regarding the state and resilience of the Indian financial system. According to the report, the nation can experience inclusive and sustainable growth in the upcoming years if macroeconomic stability, financial sector reforms, and risk management are given continued attention.
