Robust Financial Stability

Robust Financial Stability

Context:

The Indian economy and financial system remain robust and resilient, supported by macroeconomic and financial stability, according to the Reserve Bank of India’s (RBI) 29th Financial Stability Report (FSR).

Relevance:
GS-03 (Economy)

Key highlights:

• Improved balance sheets of banks and financial institutions are fostering economic activity through sustained credit expansion. The capital to risk-weighted assets ratio (CRAR) and the common equity tier 1 (CET1) ratio of scheduled commercial banks (SCBs) stood at 16.8% and 13.9%, respectively, as of end-March 2024.
• SCBs’ gross non-performing assets (GNPA) ratio fell to a multi-year low of 2.8%, and the net non-performing assets (NNPA) ratio declined to 0.6% at end-March 2024.
• Macro stress tests for credit risk indicate that SCBs would meet minimum capital requirements, with projected system-level CRAR in March 2025 at 16.1%, 14.4%, and 13.0% under baseline, medium, and severe stress scenarios, respectively.
• Non-banking financial companies (NBFCs) remained healthy, with CRAR at 26.6%, GNPA ratio at 4.0%, and return on assets (RoA) at 3.3% as of end-March 2024.
• The global economy faces heightened risks from prolonged geopolitical tensions, elevated public debt, and slow progress in disinflation, yet the global financial system has remained resilient and financial conditions stable.

Highlights from 29th Financial Stability Report (FSR):

• The global economy faces challenges from geopolitical tensions, elevated public debt, and slow progress in disinflation, but the global financial system remains resilient.
• India’s economy and financial system are robust and resilient, with banks and financial institutions supporting economic activities through healthy lending.
• Scheduled Commercial Banks (SCBs) have strong financial health, with a CRAR of 16.8%, CET1 ratio of 13.9%, GNPA ratio of 2.8%, and NNPA ratio of 0.6% as of end-March 2024.
• Under various stress scenarios, banks are projected to maintain CRAR levels of 16.1% (baseline), 14.4% (medium stress), and 13.0% (severe stress) by March 2025, ensuring preparedness for economic challenges.
• Non-Banking Financial Companies (NBFCs) are financially strong with a CRAR of 26.6%, GNPA ratio of 4.0%, and return on assets (RoA) of 3.3% as of end-March 2024.