EDEN IAS

Financial Stability Report

UPSC CURRENT AFFAIRS | RBI RELEASES THE FINANCIAL STABILITY REPORT | 02ND JULY | INDIAN EXPRESS

SYLLABUS SECTION: GS III (ECONOMY)

WHY IN THE NEWS?

Recently, Reserve Bank of India (RBI) released the 25th issue of the Financial Stability Report (FSR), which reflected 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.

HIGHLIGHTS:

  • The outlook for the global economy is shroud by considerable uncertainty because of the war in Europe, front-loaded monetary policy normalization by central banks in response to persistently high inflation and multiple waves of the COVID-19 pandemic.
  • Notwithstanding the challenges from global spill overs, the Indian economy remains on the path of recovery, though inflationary pressures, external spill overs and geopolitical risks warrant careful handling and close monitoring.
  • Banks as well as non-banking financial institutions have sufficient capital buffers to withstand shocks.
  • The capital to risk weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to a new high of 16.7 per cent, while their gross nonperforming asset (GNPA) ratio fell to a six-year low of 5.9 per cent in March 2022.
  • CRAR is decides by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
  • Gross NPA is the term used by commercial banks that refer to the sum of any unpaid debt, which is classified as non-performing loans.

PCR Ratio

  • Provisioning coverage ratio (PCR) increased to 70.9% from 67.6%.
  • A Provisioning Coverage Ratio or PCR is the percentage of funds that a bank sets aside for losses due to bad debts. A high PCR can be beneficial to banks to buffer themselves against losses if the NPAs start increasing faster.
  • Macro stress tests for credit risk reveal that SCBs would be able to comply with the minimum capital requirements even under severe stress scenarios.
  • Crypto Assets: Cryptocurrencies could result in instability over time and dollarization (foreign money replacing domestic money) of the system as they create parallel currency systems, which can undermine sovereign control over money supply, interest rates and macroeconomic stability.
  • Central bank-backed digital currencies (CBDC): A shift away from bank deposits to such instruments could potentially decrease credit availability or increase credit costs.

Read more: UPSC CURRENT AFFAIRS

SOURCE: INDIAN EXPRESS

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