26th Financial Stability Report (FSR)

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    In News

    • Recently, the RBI’s latest Financial Stability Report (FSR) indicated that India’s banks and non-bank lenders can withstand even the worst of macro-economic stress.
      • RBI’s stress testing models have been criticised in the past for a significant upward bias. 

    Major Highlights of the report 

    Financial stability has been maintained.

    • Domestic financial markets have remained stable and fully functional.
    • The banking system is sound and well-capitalised.
    • The non-banking financial sector has also withstood these challenges.
    • Banks have enough capital to maintain the ratio above the minimum requirement till September 2023. 
    • The decline in the capital adequacy ratio was on account of higher risk-weighted assets as lending activity picked up recently.
    • The decrease in slippages, increase in write-offs and an improvement in loan growth brought the gross non-performing assets (NPA) ratio of banks further down to a seven-year low of 5%.
      • The net NPA ratio stood at a 10 year low of 1.3%. 
    • Banks will be able to maintain a common equity tier-I capital ratio above the minimum requirement of 8%. 
    • There is a 41% increase in the net profit of the banks and a 10% growth in net interest income (NII).

    Challenges 

    • India along with other emerging economies is facing several risks of:
      • Rising borrowing costs.
      • Debt distress.
      • Elevated levels of inflation.
      • Volatile commodity prices.
      • Currency depreciation.
      • Capital outflows.

    Way Forward

    • Preserving macroeconomic stability in this challenging environment will require safeguarding the domestic economy and the financial system through actions that mitigate the build-up of vulnerabilities and help smooth financial market adjustments.  

    Source: FE