Sunday, July 26, 2020

RBI releases Financial Stability Report

The Reserve Bank of India (RBI) released its Financial Stability Report (FSR) , July 2020 (21st issue of FSR) on 24 July,2020.

The FSR reflects the collective assessment of the Sub-Committee of the Financial Stability
 and Development Council (FSDC - headed by the Governor of RBI) on risks to financial stability and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.

Key Points-
1.Increase in Bad Loans:
The RBI warned that the Gross Non-performing Assets (GNPA) ratio of all                            Scheduled Commercial Banks (SCBs) may increase from 8.5% in March 2020                          to 12.5% by March 2021.
The GNPA ratio may also worsen to as high as 14.7% by the end of the current                        financial year, if the adverse economic impact of the Covid-19 pandemic would                        be ‘very severe’.

2.The capital to risk-weighted assets ratio (CRAR) of Scheduled Commercial Banks (SCBs) edged down to 14.8 per cent in March 2020 from 15.0 per cent in September 2019 .

3.The provision coverage ratio (PCR) improved to 65.4 per cent from 61.6 per cent over this period.

4.Bank credit, which had considerably weakened during the first half of 2019-20, slid down further in the subsequent period with the moderation becoming broad-based across bank groups.

5.Network analysis reveals that total bilateral exposures among entities in the financial system declined marginally during 2019-20; with the inter-bank market continuing to shrink and with better capitalisation of public sector banks (PSBs), there would be reduction in contagion losses to the banking system under various scenarios in relation to a year ago.

6.The overleveraged non-financial sector, simmering global geopolitical tensions, and economic losses on account of the pandemic are major downside risks to global economic prospects.


Risk to Financial System:
The RBI said that the Indian financial system remained stable, despite the significant downside risks to economic prospects.
The downside risks to short term economic prospects are high due to the lockdown induced disruptions to both supply and demand side factors, diminished consumer confidence and risk aversion.


Source -RBI and The Hindu

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