Financial Stability Report (FSR) 2019

Financial stability report(FSR), Global Financial stability report 2019, RBI Financial stability report.

          On 27^th- December-2019 RBI (Reserve Bank of India) has released the 20^th financial stability report.  This report published twice in a year, its biannual exercise. Last time it was released 6 months back in July 27^th 2019. It is released by RBI but it is an autonomous body, a subcommittee of  financial stability and development council (FSDC), works on it on risk to financial stability, as also the flexibility of the financial system.

What is financial stability and development council (FSDC)?

               In 2008, that time RBI governor Raghuram Rajan suggested a body to work on the financial system. The finance minister of India Pranab Mukherjee finally in 2010 wanted to set this apex level body. It is an apex body constituted by the government of India but it is not a statutory body. This body contains many members and this body is chaired by the finance minister of India, not by the RBI governor. RBI governor is a member of this committee. The responsibilities of this committee are financial stability, financial sector development, financial literacy, financial inclusion, inter-regulatory coordination and macroprudential.

RBI financial stability report

               This report consists of many pages that explain very clearly. Financial stability report summary is mainly concentrated in 4 parts i.e.

1.      Banks

2.      NBFCs & HFCs

3.      Fraud reporting Rises

4.      Perception of Risk

 1. Banks

Credit growth of schedule commercial banks (SCBs) has come down to 8.7% in September from 13.2% in March 2019. And the private sector banks (PVBs) have shown double-digit growth of 16.5%. But the good thing is that the capital adequacy ratio of schedule commercial banks (SCBs) improved very much after the recapitalization of public sector banks (PSBs). The government pumps in a lot of capital to the public sector bank so that banks can easily give loans to different businesses.

SCBs’ (schedule commercial banks) (GNPA) gross non-performing assets ratio unchanged at 9.3 % between March to September 2019, but it may rise to 9.9% in September 2020. This is because of the change in the macroeconomic condition.

PCR(Provision coverage ratio) of all schedule commercial banks rose to 61.5% in September 2019 from 60.5% in march 2019 it implies there is good flexibility in the banking sector. 

2. NBFCs (Non-banking financial companies) & HFCs (Housing finance companies)

               After the NBFCs crisis RBI has initiated some policy like the introduction of liquidity management regime for NBFCs, improvement of bank’s governance, development of payment structure and resolution of stressed assets. Because of these developments in this sector has brought great market discipline.

               Before this policy NBFCs & HFCs took short term loans from the bank and invested for long time but now they are relying on long term bank loans for their investment. Bad loan ratio for NBFCs increased to 6.3% in September 2019 from 6.1% in March 2019.

3. Fraud reporting Rises

               Banks announced frauds worth of 1.13 lakh crore in the first half of 2019-20 and in 2018-19 it was 71,543 lakh crore. It is in an increasing trend. However, there is a significant time delay in reporting of fraud by banks, it is a major concern for the bank regulators and policymakers, as it took banks on an average of nearly 2 years to detect the frauds. It was said that 97.3 % of the frauds reported actually started in previous years.  

financial stability report fraud cases 

4. Perception of Risk

               The perception of domestic growth, asset quality risks for banks and fiscal corporate sector increased between April and October reported by the RBI. A major step has taken to improve  the financial markets, revised norms for investment, revised norms for credit rating agencies (CRAs) , facilitating the new commodity products and establishment of institution trading platforms(ITPs) on the stock exchange to promote start-ups by the securities and exchange broad of India(SEBI). Maximum peoples’ perception is that the banking sectors are going to improve marginally in the next year and the insolvency and bankruptcy broad playing a key role as it continues to make balanced progress in the resolution of stressed assets.  Major initiatives have been taken for the growth of insurance tech and strengthening insurers’ governance processes by the insurance regulatory and development authority of India (IRDAI). But still 25% of respondent’s perception is that the banking sectors will Detroit next year.

global financial stability report

The global economy faced the number of uncertainties, like the US-CHINA trade war, delay in Brexit deal, oil market disruption and geopolitical risks. Global Financial stability report 2019 said that because of these reasons leads to a deceleration in growth. It hurts the sentiment of the businessman, affects the confidence of the consumer and affects the investor’s intention.

The country’s financial system remains stable despite weakening domestic growth.

Reviving the twin engines of investment and consumption while being watchful about the spills overs from the global financial markets remains an essential task going forward.

Thank u