The Reserve Bank of India (RBI) released the 25th issue of the Financial Stability Report (FSR) which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system.
- As per the report, the global economy outlook is considerably uncertain because of the Russia-Ukraine war, front-loaded monetary policy normalization by central banks due to high inflation and multiple waves of the COVID-19 pandemic.
- In the latest systemic risk survey (SRS) conducted by the Reserve Bank in May 2022, global spillovers and financial market volatility moved to the ‘high’risk category.
Key Highlights:
i.Indian economy will remain on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks require close monitoring.
ii.Banks and non-banking financial institutions have sufficient capital buffers to tackle severe stress scenarios.
iii.Scheduled commercial banks (SCBs) maintained robust capital positions, with the Capital to Risk Weighted Assets Ratio (CRAR) and Common Equity Tier 1 (CET-1) Ratio of SCBs as high as 16.7 per cent and 13.6 per cent, respectively in March 2022.
- The CRAR of urban co-operative banks (UCBs) rose to 15.8 per cent in March 2022 while that of NBFCs stood at 26.9 per cent.
iv.The number of demat accounts of individuals increased 3.4 times on Central Depository Services (India) Limited, and 1.5 times on National Securities Depository Limited (NSDL) since January 2020.
v.Indian stocks’ capitalisation was 1.12 times GDP, above its 10-year average of 0.79.
vi.The Bond-Equity Earnings-Yield Ratio (BEER), a measure of the relative attractiveness of equities vis-à-vis bonds – has also dipped below its long-term average of 1.61.
vii.There is widening of the investor base due to the decline in real returns on fixed income investments, simplification of Know Your Customer (KYC) registration processes, effective use of digital technology and opening of online accounts, enhanced availability of investment information on digital modes and growing public awareness.
Gross NPAs of banks fall to six-year low of 5.9% in March 2022
As per the report Gross Non Performing Assets (GNPAs) of SCBs fell to a six-year low of 5.9 per cent in March 2022 and could fall further to 5.3% by March 2023 This is based upon the under the baseline scenario driven by higher expected bank credit growth and declining trend in the stock of GNPAs, among other factors.
- If the macroeconomic environment worsens to a medium or severe stress scenario, the GNPA ratio may rise to 6.2% and 8.3% respectively.
- It may be noted that GNPAs of SCBs were at 7.4% in March 2021.
- Net NPA ratio also fell by 70 basis points (bps) during 2021-22 and stood at 1.7% at the year-end while the Provisioning Coverage Ratio (PCR) improved to 70.9% in March 2022 from 67.6% in March 2021.
- India’s NPA ratio is one of the highest among other comparable countries. Russia’s NPA ratio stood at 8.3% followed by India with 5.9% ,South Africa stood at 5.2%,France at 2.7%,Indonesia at 2.6%,and China 1.8%.
Recent Related News:
i.RBI proposed to allow interoperability in cardless cash withdrawal transactions at all banks and ATMs (Automated Teller Machines) using the UPI (Unified Payments Interface) facility. At present, the facility of cardless cash withdrawal through ATMs is limited only to a few banks on an on-us basis (for their customers at their own ATMs).
ii.RBI also proposed to set up a committee to review the customer services offered by RBI-regulated entities such as banks, NBFC (Non-Banking Financial Company) and payment service operators. This proposal is on the lines of RBI’s efforts for strengthening the internal grievance redressal mechanism, internal ombudsman and sectoral ombudsman.
About Reserve Bank of India (RBI):
i.The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.
ii.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
