This is an excerpt of the Financial Stability Report ( FSR) as published by RBI on 27th June, 2019. People looking to advise on the Budget or willing to assess the Budget in light of FSR, will find this report summary immensely helpful.
On 27th June, 2019, the RBI released the 19th issue of the Financial Stability Report which assesses financial risks and the resilience of the financial system while putting forward developmental and regulatory issues being faced by the financial sector.
In this report, under overall assessment of risks, it is declared that despite the emerging risks related to the global economy and geopolitical environment, the financial system remains stable. The report then outlines and elaborates on three sub-topics: Global and domestic macro-financial risks, the performance and risks of financial institutions, regulation, and development in the financial sector.
The first sub-topic covers four major macro-financial risks, including a drop in the global growth forecast (currently 3.3%) in 2019, the easing of of the monetary policy stance of Advanced Economies, the weakening of private consumption and a requirement for the revival of private investment.
Under “Financial Institutions: Performance and Risks”, the report states that the credit growth for Scheduled Commercial Banks (SCBs) has picked up and Public Sector Banks (PSBs) are nearing double digit growth. The resilience of banks has been further increased as the Provision Coverage Ratio of all SCBs has risen to 60.6% in March 2019. The non-performing asset (NPA) cycle is stated to have been headed for the better and SCBs’ gross NPA ratio is predicted to decline from 9.3% to 9.0% by March 2020.
Market discipline is stated to have increased thanks to developments in the non-banking financial companies (NBFC) sector. A better capitalised public-sector banking system has also led to lower joint Solvency-Liquidity contagion losses to the banking system.
The “Financial sector: Regulations and development” section explicates on a revision of the RBI’s structure of bank supervision as well as its revised prudential framework on stressed assets and a revised Large Exposures Framework (LEF). The Security and Exchange Board of India has introduced the Guidelines for Enhanced Disclosure by CRAs and the Pension Fund Regulatory and Development Authority has amended investment guidelines for pension funds. Additionally, the Insolvency and Bankruptcy Board of India (IBBI) is working towards the resolution of stressed assets.