Financial Stability Report (FSR)


    In News

    • Recently, the Reserve Bank of India’s (RBI) released the Financial Stability Report (FSR) which said that the Bank NPA ratios are at 6-year low.

    What is Non Performing Asset (NPA)?

    • NPAs are loans or advances made by a financial institution, on which both principal or interest is unpaid for a specified period of time. Simply stated, NPAs are those loans which have ceased to generate income for the bank.
    • Types of NPA:
      • Sub Standard:  A sub-standard asset is one which is classified as an NPA for a period not exceeding twelve months.
      • Doubtful: A doubtful asset is one which has remained as an NPA for a period exceeding twelve months.
      • Loss: A loss asset is one where loss has already been identified by the bank or an external institution, but it is not yet completely written off, due to its recovery value, however little it may be.

    Major findings of the report

    • Net non-performing assets (NNPA) ratio fell by 70 bps during 2021-22 and stood at 1.7 per cent at the year-end.
    • Gross non-performing assets (GNPA) ratio: The asset quality of the banking system has improved with gross non-performing assets (GNPA) ratio declining from 7.4 per cent in 2021 to a six-year low of 5.9 per cent in 2022.
      • Banks have reduced GNPA ratio through recoveries, write-offs and reduction in slippages.
    • The provisioning coverage ratio (PCR) improved to 70.9 per cent in 2022 from 67.6 percent a year ago.
    • The slippage ratio, measuring new accretions to NPAs as a share of standard advances at the beginning of the period declined across bank groups during FY22.
    • Write-off ratio fell for the second year running to 20.0 per cent in 2021-22.  

    Data/ Statistics

    • The Indian fintech industry which is amongst the fastest growing Fintech markets in the world was valued at $50-60 billion in 2020 and is projected to reach $150 billion by 2025.
    • India has the highest fintech adoption rate globally (87 per cent), receiving funding of $8.53 billion during 2021-22.



    • If the macroeconomic environment worsens to a medium or severe stress scenario the GNPA ratio may rise to 6.2 percent and 8.3 percent.
    • Global conditions: Like most other emerging market economies (EMEs) and even some advanced economies (AEs) the Indian economy is facing significant spillovers from the evolving global conditions.
    • Financial technology industry: the advent of fintechs has exposed the banking system to new risks which extend beyond prudential issues and often intersect with other public policy objectives relating to safeguarding of data privacy, cyber security, consumer protection, competition and compliance with anti-money laundering policies.
    • Anti-competitive behaviour: complex intertwined operational linkages between BigTech firms and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour.
    • Regulators and supervisors face a challenging balancing act between innovation-friendliness and managing risks to financial stability.
    • Cyber risks: As the financial system gets increasingly digitised, cyber risks are growing and need special attention.

    Way forward/ Suggestions

    • Capital buffers: according to the RBI’s report banks as well as non-banking financial institutions have sufficient capital buffers to withstand shocks, and support from it during COVID helped banks arrest their GNPA ratio.
    • Steady recovery: The innate strength and resilience of our macro fundamentals is catalysing a steady recovery.
    • Profitability: The financial system is well-capitalised and returning to profitability.
    • External sector: is well-buffered to withstand the ongoing terms of trade shocks and portfolio outflows.
    • Path of recovery: the Indian economy remains on the path of recovery, though inflationary pressures, external spillovers and geopolitical risks warrant careful handling and close monitoring.

    Financial Stability Report (FSR)

    • It is published by RBI bi-annually on behalf of the Financial Stability and Development Council, an umbrella group of regulators which gives an overview of the health of India’s financial system.
    • It 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 in the context of contemporaneous issues relating to development and regulation of the financial sector.
    • The RBI looks at the state of both the global as well as domestic economy. 
    • It focuses on public and private banks with the following aspects: 
      • Capital availability for working
      • Cost of NPAs and whether they are manageable
      • Credit flow in different sectors of the economy
      • Credit flow at personal levels (households)
      • Macro-financial risks in the economy 
      • Macro-financial risks refer to the risks that originate from the financial system but affect the wider economy as well as risks to the financial system that originate in the wider economy.
      • Stress tests are also performed by RBI as part of FSR


    • The report helps in assessing the health of the financial systems of the economy.
    • It helps as an Early Warning System in case of any financial issues. 
    • Coming from the Central Bank, it is reliable and the growth or fallouts can be trusted.
    • Making the fallouts in the Report as points to work on will give the country a direction towards growth.

    Source: IE