RBI’s Financial Stability Report

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What is the Financial Stability report (FSR)?

• The FSR published twice each year 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.
• It includes contributions from all the financial sector regulators.
• In other words, it details the current status of different financial institutions such as all the different types of banks and non-banking lending institutions. 
• It also maps the state of credit growth and the rate at which borrowers are defaulting on paying back loans.
• To arrive at these conclusions, the RBI looks at the state of both the global as well as domestic economy.

Key highlights of the recent report-

• The global economic recovery has been losing momentum in the second half of 2021 in the face of resurfacing COVID-19 infections, the new variant Omicron.
• On the domestic front, progress in vaccination has enabled the recovery to regain traction after the debilitating second wave of the pandemic, notwithstanding signs of slowing pace more recently.
• The corporate sector is gaining strength and bank credit growth is improving.
• The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new peak of 16.6 percent and their provisioning coverage ratio (PCR) stood at 68.1 per cent in September 2021.
• Macro stress tests for credit risk indicate that the gross non-performing asset (GNPA) ratio of SCBs may increase from 6.9 percent in September 2021 to 8.1 percent by September 2022.
• SCBs would, however, have sufficient capital, both at the aggregate and individual levels, even under stress conditions.
• Emerging signs of stress in micro, small and medium enterprises (MSME) as also in the microfinance segment call for close monitoring of these portfolios going forward.
• The report further noted that financial institutions in India have remained resilient amidst the pandemic and stability prevails in the financial markets, cushioned by policy and regulatory support.

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