{"id":34636,"date":"2025-01-01T18:52:49","date_gmt":"2025-01-01T13:22:49","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=34636"},"modified":"2025-02-07T13:31:00","modified_gmt":"2025-02-07T08:01:00","slug":"rbi-financial-stability-report","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/01-01-2025\/rbi-financial-stability-report","title":{"rendered":"RBI&#8217;s Financial Stability Report Flags Rising NPAs, Global Economic Risks"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Indian Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Recently, the Reserve Bank of India (RBI) released its <strong>Financial Stability Report (FSR), December 2024<\/strong> highlighting several critical aspects of the Indian and global financial landscapes.\n<ul class=\"wp-block-list\">\n<li><strong>Financial Stability Report (FSR) <\/strong>is <strong>published by RBI<\/strong> <strong>bi-annually<\/strong> on behalf of the <strong>Financial Stability and Development Council (FSDC).<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Highlights of the Report<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Stress Tests and Resilience:<\/strong> Macro stress tests conducted by the RBI demonstrate that most SCBs have sufficient capital buffers to withstand adverse scenarios.\n<ul class=\"wp-block-list\">\n<li>The resilience of mutual funds, clearing corporations, and non-banking financial companies (NBFCs) is also validated through these tests.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Government Finance:<\/strong> The central government\u2019s <strong><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/06-02-2025\/debt-gdp-ratio\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/ca\/current-affairs\/06-02-2025\/debt-gdp-ratio\">debt-to-GDP ratio<\/a><\/strong> is expected to decrease from 62.7% in 2020-21 to 56.8% by 2024-25.\n<ul class=\"wp-block-list\">\n<li>Similarly, states\u2019 outstanding liabilities are projected to decline from 31% to 28.8%.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Economic Growth Projections:<\/strong> The report projects that the Indian economy will expand by <strong>6.6% in FY25 (2024-25)<\/strong>, driven by a <strong><em>revival in rural consumption, increased government spending, and strong services exports.<\/em><\/strong>&nbsp;<\/li>\n\n\n\n<li><strong>Rising <a href=\"https:\/\/www.nextias.com\/blog\/non-performing-assets-npas\/\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/blog\/non-performing-assets-npas\/\">Non-Performing Assets (NPAs)<\/a>:<\/strong> The report indicates a potential rise in the share of bad loans among commercial banks.\n<ul class=\"wp-block-list\">\n<li>Under baseline stress scenarios, the <strong>Gross Non-performing Asset (GNPA)<\/strong> <strong>ratio <\/strong>could increase from 2.6% in September 2024 to 3% by March 2026.&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Domestic Financial Stability: <\/strong>Despite global uncertainties, the Indian financial system remains robust.\n<ul class=\"wp-block-list\">\n<li>The soundness of Scheduled Commercial Banks (SCBs) is supported by strong profitability, and adequate capital and liquidity buffers.<\/li>\n\n\n\n<li>The <strong><em>return on assets (RoA) and return on equity (RoE)<\/em><\/strong> for banks are at decadal highs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Sectoral Insights:<\/strong> The FSR highlights concerns in specific sectors, such as <strong><em>microfinance and consumer credit,<\/em><\/strong> which require close monitoring.&nbsp;<\/li>\n\n\n\n<li><strong>Insurance Sector: <\/strong>It maintains a <strong>robust solvency ratio<\/strong>, indicating its stability.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Concerns Highlighted in the FSR of RBI<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>High Public Debt:<\/strong> Although the Union government\u2019s debt-to-GDP ratio is expected to decrease from its pandemic peak, it remains a concern for long-term fiscal sustainability.<\/li>\n\n\n\n<li><strong>Global Economic Vulnerabilities:<\/strong> These include <em>stretched asset valuations, high public debt, prolonged geopolitical conflicts, and emerging technological risks.<\/em>\n<ul class=\"wp-block-list\">\n<li>These factors pose medium-term risks to global financial stability.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Geopolitical Conflicts:<\/strong> Prolonged geopolitical conflicts can disrupt global supply chains, affect commodity prices, and lead to financial market volatility, all of which can have adverse effects on the Indian economy.<\/li>\n\n\n\n<li><strong>Emerging Technological Risks: <\/strong>Cybersecurity threats, data privacy issues, and the potential for technological disruptions in financial services are highlighted as areas requiring close monitoring and robust regulatory frameworks.<\/li>\n\n\n\n<li><strong>Climate Change:<\/strong> Extreme weather events and the transition to a low-carbon economy could have significant implications for financial institutions and the broader economy.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Financial Stability and Development Council (FSDC)<\/strong><br><br>&#8211; <strong>Established: <\/strong>In 2010 as a <strong>non-statutory<\/strong> apex-level body by the Government of India.<br><br>&#8211; <strong>Aim: <\/strong>Strengthening and institutionalizing the mechanism for maintaining financial stability and promoting financial sector development.<br><br>&#8211; <strong>Members: <\/strong>Union Finance Minister (Chairperson)<br>1. Heads of Financial Sector Regulators (RBI, SEBI, PFRDA, IRDA &amp; FMC); Finance Secretary and Chief Economic Adviser etc.<br>2. It can invite experts to its meeting if required.<br><br>&#8211; <strong>Functions: <\/strong>Monitors and addresses systemic risks in the financial sector.<br>1. Enhances the growth and efficiency of the financial sector.<br>2. Facilitates coordination among financial sector regulators to resolve inter-regulatory issues.<br>3. Strengthens mechanisms for dealing with financial crises.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.business-standard.com\/opinion\/editorial\/banking-stability-124123100934_1.html\" target=\"_blank\" rel=\"noopener\">Source: BS<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recently, the Reserve Bank of India (RBI) released its Financial Stability Report (FSR), December 2024 highlighting several critical aspects of the Indian and global financial landscapes.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-34636","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/34636","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=34636"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/34636\/revisions"}],"predecessor-version":[{"id":36913,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/34636\/revisions\/36913"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=34636"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=34636"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=34636"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}