The Reserve Bank of India (RBI) has published the 19th edition of the Financial Stability Report (FSR). The report delivers a comprehensive analysis of the current state of India’s financial system. It highlights the ongoing stability of the financial sector, the strengthening resilience within the banking industry, and the various global and domestic challenges still faced.
Global and Domestic Macro-Financial Risks
The FSR outlines numerous macro-financial risks that are posing a challenge to the world economy. International institutions such as the World Bank and IMF have revised their global growth forecast downward due to these significant threats.
Major risks include unfavourable geopolitical advancements, escalating trade tensions worldwide, and reduced new investment. There is also a concerning widening of the current account deficit. Added to these, there’s an eased monetary policy stance undertaken by advanced economies’ central banks. As a result, emerging and developing economies are forced to adjust accordingly.
The report also emphasizes the challenge of stimulating private investment demand while being cautious about the ripple effect from global financial markets.
Financial Institutions: Performance and Risks
The performance of Scheduled Commercial Banks (SCBs), in particular public sector banks (PSBs), was commendable with credit growth picking up markedly. This progress was underpinned by the improved capital adequacy of SCBs post the recapitalization of PSBs.
According to the report, the non-performing asset (NPA) cycle shows signs of reversal, indicating a healthier banking sector. Additionally, the Provision Coverage Ratio (PCR) witnessed a stark increase from 52.4% in September 2018 to 60.6% in March 2019. This increased the banking sector’s resilience.
| Fact | Details |
|---|---|
| Credit Growth | Public sector banks (PSBs) registered near double-digit growth. |
| Capital Adequacy | Improvement noticed post the recapitalization of PSBs. |
| Non-Performing Asset Cycle | Shows signs of reversal. |
| Provision Coverage Ratio | Rose sharply from 52.4% to 60.6% improving banking sector resilience. |
Financial Sector: Regulation and Developments
In an effort to fine-tune the supervisory mechanism for banks and recognition of the growing diversity, complexities, and interconnectedness within the Indian financial sector, the Reserve Bank has recently reviewed the structure of supervision.
To incentivize early adoption of a resolution plan, the RBI issued a revised prudential framework on stressed assets. To further enhance disclosures made by Credit Rating Agencies (CRAs) and strengthen the rating framework, the Securities and Exchange Board of India (SEBI) introduced Guidelines for Enhanced Disclosures by CRAs.
Additionally, the Pension Fund Regulatory and Development Authority (PFRDA) revised the investment guidelines to provide pension funds with additional flexibility to adjust to varying market conditions. The Insolvency and Bankruptcy Board of India (IBBI) has also been making steady progress in the resolution of stressed assets.