Financial Stability Report

Financial Stability Report

News: Reserve Bank of India (RBI) released its bi-annual Financial Stability Report (FSR).

Key Findings:

Positive news on NPA
• The asset quality of the banking system has improved with the gross non-performing assets (GNPA) ratio declining from 7.4 per cent in March 2021 to a six-year low of 5.9 per cent in March 2022.
• Banks have reduced the GNPA ratio through recoveries, write-offs and reduction in slippages.

Sufficient capital buffer
• 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.

Provision Coverage Ratio
• It improved to 70. 9 per cent in March 2022 from 67.6 per cent a year ago.
• 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.

What are the concerns raised by RBI?
• RBI Governor termed cryptocurrencies as a ‘clear danger’ and anything that derives value based on make- believe, without any underlying, is just ‘speculation under a sophisticated name’.
• The report cautioned that the advent of fintech has exposed the banking system to new risks such as safeguarding of data privacy, cyber security, consumer protection, competition and compliance with AML (anti-money laundering) policies. India has the highest fintech adoption rate globally (87 per cent), receiving funding of $8.53 billion during 2021-22.
• US rate hike, threat of looming recession there, ongoing Ukraine crisis and oil price rise will continue to have adverse impact on the Indian economy.

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