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India’s financial system remains stable despite recession: RBI’s 20th FSR report

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On December 27, 2019, According to the 20th edition of the Financial Stability Report (FSR) 2019 released by Reserve Bank of India(RBI), India’s financial system remains stable despite the recession (a period of temporary economic decline).
The demand on the domestic front has been weak in the second quarter of Fiscal year FY 2019-20.
i.The resilience of the banking sector has improved happened due to recapitalization in banks by the central Government.
RBIRBI criticizes credit rating agencies for their role in ‘rating shopping’
After the capital market regulator SEBI (Securities and Exchange Board of India)imposed a fine of Rs 25 lakh each on the major Credit rating agencies (CRA) -CARE and ICRA for violation, the Reserve Bank of India (RBI) has also taken a dig at these agencies by strongly criticizing them for allowing low-rated companies to do “rating shopping“(where rating agencies giving good ratings to companies with poor ratings within 3 months).

Key Points:

i.Reserve Bank has also warned companies against taking long-term loans from banks based on limited ratings of credit rating agencies . This warning was given for taking long term loans based on the indicative ratings of credit rating companies, which are not available with banks and investors.

ii.The report noted that most of the ratings were done in shopping “BBB”or below financial instruments with ratings. Credit rating agencies are also held responsible for the 2008 global economic crisis due to their poor policies.

iii.Background: Indian infrastructure development and finance company, Infrastructure Leasing & Financial Services (IL&FS) defaulted in repayment of loan installments in September 2018, rating agencies like, ICRA and CARE gave its loan documents an AAA / AA + rating.

Note: CARE (formerly Credit Analysis and Research Limited ) & ICRA (originally Investment Information and Credit Rating Agency).

Bank frauds touched an all-time high of Rs 1.13 lakh crore in H1 FY20
According to the report, frauds worth Rs 1.13 lakh crore have been registered in banks in the 1st half of the current financial year 2019-20 (H1 FY20), which is the highest amount of bank fraud so far. It has reached record levels due to delays in fraud detection by banks.
There are 4412 cases in which fraud amounting to 1 lakh or above has been committed in FY-20(or 2019).In this, during the first half, banks reported 398 cases of large value frauds (above Rs 50 crore) worth Rs 1.05 lakh crore.

Key Points:

i.In the last financial year-FY 19(or 2018), a total of 6801 cases of bank fraud were reported in which fraud amounting to Rs 71,543 crores has been done. This time, this amount has increased to Rs 1.13 lakh crore in the first 6 months, which is over one and a half times the total amount in 2018.

ii.Apart from this, the lender banks have reported 21 such cases in which more than Rs.1000 crore have been fraudulent with a total amount of 44,951 crore rupees has been committed.

About RBI:
Headquarters– Mumbai, Maharashtra
Established– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (BP Kanungo, N S Vishwanathan, and Mahesh Kumar Jain, 1 is yet to be appointed)