Why in Broadcast?

• The Reserve Bank of India recently released the 26th issue of the Financial Stability Report (FSR). The report 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.

Major takeaways

1. The Global economy is faltering:

• The interplay of multiple shocks has resulted in tightened financial conditions and heightened volatility in financial markets.
• WTO’s Goods Trade Barometer shows that the World merchandise trade volumes, have been slowing in the second half of the year.
• The slowdown reflects a combination of tapering import demand and disrupted production and supply of widely traded goods such as automobiles and semiconductors
• Baltic Dry Index, which is a measure of shipping charges for dry bulk commodities and had crossed its highest mark in October 2021, recorded a sudden drop after that.

2. Bank credit growth:

• As per report, Banking stability indicator (BSI), which indicates the changes in underlying conditions and risk factors of India’s commercial banks, showed improvement in soundness, asset quality, liquidity and profitability parameters.
• The growth rate, however is still far off the ideal level. The retail credit is growing at a decent clip, wholesale credit growth continues to struggle.
• Further, data shows that most of the wholesale credit is being picked up by public sector undertakings while the private sector is holding back from raising fresh funding

3. Non performing assets:

• The gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCBs) fell to a seven-year low of 5.0 per cent and net non-performing assets (NNPA) have dropped to ten-year low of 1.3 per cent in September 2022.

About the Report

• Financial Stability Report lays out the state of financial stability of the country and is prepared after taking into account the contribution from all financial sector regulators such as banks etc.
• Further, it informs about the state of credit growth and non performing assets.
• RBI examines several aspects such as state of global as well as domestic economy, and conducts tests on how variables will react if the economy doesn’t grow as anticipated
• The report is published twice a year, and as a part of it RBI conducts Systematic risk surveys as well.

Conclusion

• The recent FSR report suggests that India’s banking and financial sector has significantly improved from July assessment 2021.
• However, the rise of omicron as well as the slowing global growth, monetary tightening in developed nations (which is likely to hinder foreign monetary flows) still remain a concern.