RBI’s Financial Stability Report

GS Paper III

News excerpt:

The Reserve Bank released the 28th issue of the Financial Stability Report (FSR).

Highlights of the report: 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 Indian financial system. 

Details of the report are as follow:

  • The global economy faces multiple challenges:
    •   Prospects of slowing growth
    •   Large public debt
    •   Increasing economic fragmentation
    •   Prolonging geopolitical conflicts
  •  The Indian economy and the domestic financial system remain resilient, supported by:
    • Strong macroeconomic fundamentals.
    • Healthy balance sheets of financial institutions.
    • Moderating inflation.
    • Improving external sector position.
    •  Continuing fiscal consolidation.
  •  CRAR  & CET1 ratio
    •  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 13.7% , respectively, in September 2023.
      • According to the report, the increase in risk weights addresses growth exuberance among lenders. Risk weights for NBFCs’ unsecured loans were also increased.
      • Banks and NBFCs will be required to allocate higher capital for unsecured retail loans, 
        • Which will improve their loss-absorbing buffers.
        • It will dampen growth exuberance among lenders and improve credit quality.
  • SCBs’ gross non-performing assets (GNPA) ratio continued to decline to a multi-year low of 3.2 % and the net NNPA ratio to 0.8% in September 2023.
  • Macro stress tests for credit risk reveal that SCBs would be able to comply with minimum capital requirements, with the system-level CRAR in September 2024 projected at 14.8 %, 13.5 % and 12.2 % , respectively, under baseline, medium and severe stress scenarios.
  • The resilience of the non-banking financial companies (NBFCs) sector improved with CRAR at 27.6 per cent, GNPA ratio at 4.6 percent and return on assets (RoA) at 2.9 percent, respectively, in September 2023.

Financial Stability Report (FSR)

  •  It is published by the RBI, released twice a year after approval by the Financial Stability and Development Council (FSDC) Sub-Committee.
  • It takes inputs from financial sector regulators i.e. RBI, SEBI, PFRDA, IRDAI including the Ministry of Finance.
  • It is a periodic exercise for reviewing the nature, magnitude and implications of risks that may have a bearing on the macroeconomic environment, financial institutions, markets and infrastructure.


Financial Stability and Development Council (FSDC):  

  • The Financial Stability and Development Council (FSDC) was set up by the Government as the apex level forum in December 2010.
  • The Chairman of the Council is the Finance Minister and its members include the heads of financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC) Finance Secretary and/or Secretary, Department of Economic Affairs, Secretary, Department of Financial Services, and Chief Economic Adviser.

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