Reserve Bank of India on 28th June released the Financial Stability Report (FSR) June 2016, a biannual publication and the thirteenth in the series. The FSR reflects the overall assessment on the stability of India’s financial system and its resilience to risks emanating from global and domestic factors. Besides, the Report also discusses issues relating to development and regulation of the financial sector. Beginning from June 2015 issue, a special thematic discussion is included in the FSRs brought out in June. Accordingly, this issue of FSR brings out a thematic discussion on ‘An optimal configuration for the financial system – Banks versus Market’ in the context of the progress towards making the Indian financial system more effective in supporting the economic growth.
Highlights of RBI's Financial Stability Report June 2016:
- India’s financial system remains stable, even though the banking sector is facing significant challenges. As global uncertainties and transiting geopolitical risks impact India, continuation of sound domestic policies and structural reforms remain the key for macroeconomic stability.
- The global recovery remains fragile amidst weak and uneven growth, a slowdown in world trade and prevailing uncertainties in financial and commodities markets.
- India’s external sector indicators show a relatively stronger position. However, a faster growth in India’s oil import in terms of volume in recent years makes it imperative to be alert to the risks of commodity cycle reversals.
- The prediction of a normal monsoon augurs well for agriculture sector growth in 2016-17, although the spatial and temporal distribution matter as much as the total quantum of rainfall.
- The business of scheduled commercial banks (SCBs) slowed significantly during 2015-16. The gross non-performing advances (GNPAs) ratio increased sharply to 7.6 per cent from 5.1 per cent between September 2015 and March 2016, largely reflecting reclassification of restructured standard advances as non-performing due to asset quality review (AQR).
- The restructured standard advances ratio declined but with a marginal increase in the overall stressed advances ratio from 11.3 per cent in September 2015 to 11.5 per cent in March 2016.
- The capital to risk-weighted assets ratio (CRAR) of SCBs showed some improvement across the bank-groups. However, the profitability of SCBs declined significantly and the public sector banks (PSBs) recorded losses during 2015-16.
- As Indian banks are currently focusing on cleaning their balance sheets in the wake of the AQR, various measures taken by the Government to address the issues related to distressed industrial sectors are expected to help the process and improve the credit growth.
- There is a need to assess the resilience of reinsurance companies in the face of increasing concentration of contingent liabilities in a few reinsurance entities. The move towards adopting risk based supervision by the pension sector regulator is expected to ensure efficient allocation of supervisory resources.
