Recently, the Reserve Bank released the 24th issue of the Financial Stability Report (FSR), which 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.
Context
Recently, the Reserve Bank released the 24th issue of the Financial Stability Report (FSR), which 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.
About Financial Stability Report (FSR)
- The FSR is published biannually by the Reserve Bank of India.
- It reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC), on risks to financial stability.
- It also discusses the issues related to development and regulation of the financial sector.
Key-highlights of the Report
- The gross non-performing assets (GNPAs) of banks are likely to jump from 6.9 percent in September 2021 to 8.1 percent in September 2022 under the baseline scenario.
- While under a severe stress scenario, it is likely to increase to 9.5 percent for the same period.
- Scheduled Commercial Banks have sufficient capital, at the aggregate as well as individual levels, even under stress conditions.
- The report further highlights the collective assessment of the Sub-Committee of the Financial Stability & Development Council (FSDC) on risks to financial stability as well as resilience of the financial system.
- It notes that progress in vaccination on the domestic front has enabled the recovery to regain traction after the debilitating second wave of Covid-19 pandemic.
- However, signs of slowing pace were witnessed more recently.
- Corporate sector is gaining strength and bank credit growth is also improving.
Capital to risk-weighted assets ratio (CRAR)
- Capital to Risk (Weighted) Assets Ratio (CRAR) is also known as Capital adequacy Ratio, the ratio of a bank’s capital to its risk.
- The banking regulator tracks a bank’s CAR to ensure that the bank can absorb a reasonable amount of loss and complies with statutory Capital requirements.
- Higher CRAR indicates a bank is better capitalized.
- The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) have increased to a new peak of 16.6 percent.
- On the other hand, provisioning coverage ratio (PCR) was 68.1 percent in September 2021.
