Note4Students
From UPSC perspective, the following things are important :
Prelims level: Financial Stability Report, FSDC
Why in the News?
The Reserve Bank of India has released the 29th issue of the Financial Stability Report (FSR).
About Financial Stability Report:
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Key Highlights of the FSR
[1] Global Economic Context
- Heightened Global Risks: The global economy faces significant challenges, such as:
- Geopolitical Tensions: Conflicts or political disagreements between countries that can affect global stability.
- Elevated Public Debt: Many countries owe large amounts of money, which can be risky if they struggle to repay it.
- Slow Progress in Disinflation: Prices of goods and services are not decreasing quickly, which can affect economic stability.
- Resilience: Despite these challenges, the global financial system (how money moves around the world) remains strong and stable.
[2] Indian Economy and Financial System
- Robust and Resilient: India’s economy and financial system are strong and able to handle shocks or problems.
- Banking Sector Support: Banks and financial institutions (like insurance companies) are in good health and are lending money to support economic activities.
[3] Financial Metrics for Scheduled Commercial Banks (SCBs)
- Capital Ratios:
- Capital to Risk-Weighted Assets Ratio (CRAR): This is a measure of a bank’s financial strength. A CRAR of 16.8% means that for every 100 units of risk, the bank has 16.8 units of capital to cover potential losses.
- Common Equity Tier 1 (CET1) Ratio: This is a stricter measure of a bank’s core capital. A CET1 ratio of 13.9% means the bank has a strong base of high-quality capital.
- Asset Quality:
- Gross Non-Performing Assets (GNPA) Ratio: This measures the percentage of a bank’s loans that are not being repaid. A GNPA ratio of 2.8% means that 2.8% of the total loans are in trouble.
- Net Non-Performing Assets (NNPA) Ratio: This is similar to GNPA but considers the money the bank has already set aside to cover bad loans. An NNPA ratio of 0.6% means that 0.6% of the total loans, after accounting for provisions, are in trouble.
[4] Macro Stress Tests for Credit Risk
- Stress Scenarios and Projections:
- Baseline Scenario: Under normal conditions, banks are expected to have a CRAR of 16.1% by March 2025.
- Medium Stress Scenario: Under moderate stress, banks are expected to have a CRAR of 14.4% by March 2025.
- Severe Stress Scenario: Under severe stress, banks are expected to have a CRAR of 13.0% by March 2025.
- Interpretation: These tests show how banks might perform under different levels of economic stress. They are hypothetical scenarios to ensure banks are prepared for tough times.
[5] Health of Non-Banking Financial Companies (NBFCs)
- CRAR: NBFCs have a CRAR of 26.6%, indicating they are financially strong.
- GNPA Ratio: NBFCs have a GNPA ratio of 4.0%, meaning 4% of their loans are not being repaid.
- Return on Assets (RoA): NBFCs have a RoA of 3.3%, indicating they are making good profits from their assets.
PYQ:[2016] With reference to ‘Financial Stability and Development Council’, consider the following statements: 1. It is an organ of NITI Aayog. 2. It is headed by the Union Finance Minister. 3. It monitors macroprudential supervision of the economy. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3 |
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