The Reserve Bank of India (RBI) released the Financial Stability Report (FSR) June 2015. It is the eleventh issue of its half yearly publication.
The FSR reflected the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system. Besides, the report discussed issues relating to development and regulation of the financial sector.
Highlights of Financial Stability Report (FSR) June 2015
Macro-Financial Risks
Global Economy and Markets: Global economic recovery still seems to be far from being self-sustaining even as spillovers from large-scale monetary accommodation in advanced economies (AEs) are increasing the challenges for emerging market and developing economies (EMDEs).
Developments on the Greek debt crisis front and uncertainty over the timing of rate increases by the US Federal Reserve remain immediate possible triggers for global financial market volatility.
Domestic Economy and Markets: There has been a significant improvement in the macroeconomic environment and economic performance is expected to be better in near future. However, price pressures arising from possible sub-normal monsoon remains a significant risk to food and headline inflation.
While foreign portfolio flows to India have been strong during past year, unexpected changes in AE monetary policy stances may lead to slowdown/reversal of such flows with implications for segments of financial markets.
Financial Institutions: Soundness and Resilience
Scheduled Commercial Banks (SCBs): The performance of SCBs in terms of growth in business has moderated further during the period September 2014-March 2015. The public sector banks (PSBs) continued to record the lowest capital to risk-weighted assets ratio (CRAR) among the bank-groups.
The maximum decline in CRAR was registered by PSB with 1.8 percentage points between March 2011 and March 2015 followed by foreign banks (FBs) at 1.5 percentage points and private sector banks (PVBs) at 1.1 percentage points.
PSBs recorded the highest level of stressed assets at 13.5 per cent of total advances as of March 2015, compared to 4.6 per cent in the case of PVBs.
Net non-performing advances (NNPAs) ratio of PSBs increased from 3.1 per cent to 3.2 per cent and in the case of PVBs, it increase from 0.8 per cent to 0.9 per cent
While risks to the banking sector, as reflected by the Banking Stability Map, have moderated marginally since September 2014, concerns remain over the continued weakness in asset quality and profitability.
Urban Co-operative Banks and Non-Bank Financial Companies: The asset quality of scheduled urban co-operative banks (UCBs) improved, whereas, asset quality of non-bank financial companies (NBFCs) continued to deteriorate.
Financial Sector Regulation
The financial sector regulatory reforms in India are being driven by the domestic priorities, within the spirit of the global regulatory standards, even as the challenges in uniform implementation of the reforms are coming to the fore, in many jurisdictions.
Considering that risk taking is inherent and essential in financial markets, the current Indian regulatory stance envisions a balanced, predictable, cycle-proof, institution-neutral, ownership-neutral and technology neutral regulatory regime for the entire financial system.
Banking sector: The policy initiatives for improving the governance and management processes at PSBs, along with a reorientation of business strategy will help improve the performance of PSBs in the long run, even as they presently look to clean their balance sheets in the wake of regulatory impetus.
Securities market: The concerns emanating from rapid rise in algorithm trading in recent years highlights the need for caution for India’s securities markets. Significant regulatory steps have been taken with regard to illegal money-raising activities, insider trading and strengthening the risk management systems at depositories.
Insurance sector: The agricultural insurance needs urgent focus in the wake of frequent episodes of weather related calamities and their impact, particularly on small and marginal farmers.
Commodity derivative markets: There is a need for harmonising the regulation of the physical commodities market and strengthening the linkages between the derivatives markets and physical (cash) markets, mainly in agricultural commodities.
Pension sector: The expected shifts in demography in coming decades call for attention on old age income security in particular for the unorganised sector – for which a new scheme (Atal Pension Yojana) has been announced by the Union Government.
Conclusion: Overall, India’s relatively stronger macroeconomic fundamentals in terms of growth, inflation, current account and fiscal deficits provide a reasonable degree of resilience to Indian financial system in the event of spillover effects from global factors. However, with the continued uncertainty over global growth and in the absence of international monetary policy coordination, there can be no room for complacency.
The FSR reflected the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system. Besides, the report discussed issues relating to development and regulation of the financial sector.
Highlights of Financial Stability Report (FSR) June 2015
Macro-Financial Risks
Global Economy and Markets: Global economic recovery still seems to be far from being self-sustaining even as spillovers from large-scale monetary accommodation in advanced economies (AEs) are increasing the challenges for emerging market and developing economies (EMDEs).
Developments on the Greek debt crisis front and uncertainty over the timing of rate increases by the US Federal Reserve remain immediate possible triggers for global financial market volatility.
Domestic Economy and Markets: There has been a significant improvement in the macroeconomic environment and economic performance is expected to be better in near future. However, price pressures arising from possible sub-normal monsoon remains a significant risk to food and headline inflation.
While foreign portfolio flows to India have been strong during past year, unexpected changes in AE monetary policy stances may lead to slowdown/reversal of such flows with implications for segments of financial markets.
Financial Institutions: Soundness and Resilience
Scheduled Commercial Banks (SCBs): The performance of SCBs in terms of growth in business has moderated further during the period September 2014-March 2015. The public sector banks (PSBs) continued to record the lowest capital to risk-weighted assets ratio (CRAR) among the bank-groups.
The maximum decline in CRAR was registered by PSB with 1.8 percentage points between March 2011 and March 2015 followed by foreign banks (FBs) at 1.5 percentage points and private sector banks (PVBs) at 1.1 percentage points.
PSBs recorded the highest level of stressed assets at 13.5 per cent of total advances as of March 2015, compared to 4.6 per cent in the case of PVBs.
Net non-performing advances (NNPAs) ratio of PSBs increased from 3.1 per cent to 3.2 per cent and in the case of PVBs, it increase from 0.8 per cent to 0.9 per cent
While risks to the banking sector, as reflected by the Banking Stability Map, have moderated marginally since September 2014, concerns remain over the continued weakness in asset quality and profitability.
Urban Co-operative Banks and Non-Bank Financial Companies: The asset quality of scheduled urban co-operative banks (UCBs) improved, whereas, asset quality of non-bank financial companies (NBFCs) continued to deteriorate.
Financial Sector Regulation
The financial sector regulatory reforms in India are being driven by the domestic priorities, within the spirit of the global regulatory standards, even as the challenges in uniform implementation of the reforms are coming to the fore, in many jurisdictions.
Considering that risk taking is inherent and essential in financial markets, the current Indian regulatory stance envisions a balanced, predictable, cycle-proof, institution-neutral, ownership-neutral and technology neutral regulatory regime for the entire financial system.
Banking sector: The policy initiatives for improving the governance and management processes at PSBs, along with a reorientation of business strategy will help improve the performance of PSBs in the long run, even as they presently look to clean their balance sheets in the wake of regulatory impetus.
Securities market: The concerns emanating from rapid rise in algorithm trading in recent years highlights the need for caution for India’s securities markets. Significant regulatory steps have been taken with regard to illegal money-raising activities, insider trading and strengthening the risk management systems at depositories.
Insurance sector: The agricultural insurance needs urgent focus in the wake of frequent episodes of weather related calamities and their impact, particularly on small and marginal farmers.
Commodity derivative markets: There is a need for harmonising the regulation of the physical commodities market and strengthening the linkages between the derivatives markets and physical (cash) markets, mainly in agricultural commodities.
Pension sector: The expected shifts in demography in coming decades call for attention on old age income security in particular for the unorganised sector – for which a new scheme (Atal Pension Yojana) has been announced by the Union Government.
Conclusion: Overall, India’s relatively stronger macroeconomic fundamentals in terms of growth, inflation, current account and fiscal deficits provide a reasonable degree of resilience to Indian financial system in the event of spillover effects from global factors. However, with the continued uncertainty over global growth and in the absence of international monetary policy coordination, there can be no room for complacency.
The Reserve Bank of India (RBI) released the Financial Stability Report (FSR) June 2015. It is the eleventh issue of its half yearly publication.
The FSR reflected the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system. Besides, the report discussed issues relating to development and regulation of the financial sector.
Highlights of Financial Stability Report (FSR) June 2015
Macro-Financial Risks
Global Economy and Markets: Global economic recovery still seems to be far from being self-sustaining even as spillovers from large-scale monetary accommodation in advanced economies (AEs) are increasing the challenges for emerging market and developing economies (EMDEs).
Developments on the Greek debt crisis front and uncertainty over the timing of rate increases by the US Federal Reserve remain immediate possible triggers for global financial market volatility.
Domestic Economy and Markets: There has been a significant improvement in the macroeconomic environment and economic performance is expected to be better in near future. However, price pressures arising from possible sub-normal monsoon remains a significant risk to food and headline inflation.
While foreign portfolio flows to India have been strong during past year, unexpected changes in AE monetary policy stances may lead to slowdown/reversal of such flows with implications for segments of financial markets.
Financial Institutions: Soundness and Resilience
Scheduled Commercial Banks (SCBs): The performance of SCBs in terms of growth in business has moderated further during the period September 2014-March 2015. The public sector banks (PSBs) continued to record the lowest capital to risk-weighted assets ratio (CRAR) among the bank-groups.
The maximum decline in CRAR was registered by PSB with 1.8 percentage points between March 2011 and March 2015 followed by foreign banks (FBs) at 1.5 percentage points and private sector banks (PVBs) at 1.1 percentage points.
PSBs recorded the highest level of stressed assets at 13.5 per cent of total advances as of March 2015, compared to 4.6 per cent in the case of PVBs.
Net non-performing advances (NNPAs) ratio of PSBs increased from 3.1 per cent to 3.2 per cent and in the case of PVBs, it increase from 0.8 per cent to 0.9 per cent
While risks to the banking sector, as reflected by the Banking Stability Map, have moderated marginally since September 2014, concerns remain over the continued weakness in asset quality and profitability.
Urban Co-operative Banks and Non-Bank Financial Companies: The asset quality of scheduled urban co-operative banks (UCBs) improved, whereas, asset quality of non-bank financial companies (NBFCs) continued to deteriorate.
Financial Sector Regulation
The financial sector regulatory reforms in India are being driven by the domestic priorities, within the spirit of the global regulatory standards, even as the challenges in uniform implementation of the reforms are coming to the fore, in many jurisdictions.
Considering that risk taking is inherent and essential in financial markets, the current Indian regulatory stance envisions a balanced, predictable, cycle-proof, institution-neutral, ownership-neutral and technology neutral regulatory regime for the entire financial system.
Banking sector: The policy initiatives for improving the governance and management processes at PSBs, along with a reorientation of business strategy will help improve the performance of PSBs in the long run, even as they presently look to clean their balance sheets in the wake of regulatory impetus.
Securities market: The concerns emanating from rapid rise in algorithm trading in recent years highlights the need for caution for India’s securities markets. Significant regulatory steps have been taken with regard to illegal money-raising activities, insider trading and strengthening the risk management systems at depositories.
Insurance sector: The agricultural insurance needs urgent focus in the wake of frequent episodes of weather related calamities and their impact, particularly on small and marginal farmers.
Commodity derivative markets: There is a need for harmonising the regulation of the physical commodities market and strengthening the linkages between the derivatives markets and physical (cash) markets, mainly in agricultural commodities.
Pension sector: The expected shifts in demography in coming decades call for attention on old age income security in particular for the unorganised sector – for which a new scheme (Atal Pension Yojana) has been announced by the Union Government.
Conclusion: Overall, India’s relatively stronger macroeconomic fundamentals in terms of growth, inflation, current account and fiscal deficits provide a reasonable degree of resilience to Indian financial system in the event of spillover effects from global factors. However, with the continued uncertainty over global growth and in the absence of international monetary policy coordination, there can be no room for complacency.
The FSR reflected the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system. Besides, the report discussed issues relating to development and regulation of the financial sector.
Highlights of Financial Stability Report (FSR) June 2015
Macro-Financial Risks
Global Economy and Markets: Global economic recovery still seems to be far from being self-sustaining even as spillovers from large-scale monetary accommodation in advanced economies (AEs) are increasing the challenges for emerging market and developing economies (EMDEs).
Developments on the Greek debt crisis front and uncertainty over the timing of rate increases by the US Federal Reserve remain immediate possible triggers for global financial market volatility.
Domestic Economy and Markets: There has been a significant improvement in the macroeconomic environment and economic performance is expected to be better in near future. However, price pressures arising from possible sub-normal monsoon remains a significant risk to food and headline inflation.
While foreign portfolio flows to India have been strong during past year, unexpected changes in AE monetary policy stances may lead to slowdown/reversal of such flows with implications for segments of financial markets.
Financial Institutions: Soundness and Resilience
Scheduled Commercial Banks (SCBs): The performance of SCBs in terms of growth in business has moderated further during the period September 2014-March 2015. The public sector banks (PSBs) continued to record the lowest capital to risk-weighted assets ratio (CRAR) among the bank-groups.
The maximum decline in CRAR was registered by PSB with 1.8 percentage points between March 2011 and March 2015 followed by foreign banks (FBs) at 1.5 percentage points and private sector banks (PVBs) at 1.1 percentage points.
PSBs recorded the highest level of stressed assets at 13.5 per cent of total advances as of March 2015, compared to 4.6 per cent in the case of PVBs.
Net non-performing advances (NNPAs) ratio of PSBs increased from 3.1 per cent to 3.2 per cent and in the case of PVBs, it increase from 0.8 per cent to 0.9 per cent
While risks to the banking sector, as reflected by the Banking Stability Map, have moderated marginally since September 2014, concerns remain over the continued weakness in asset quality and profitability.
Urban Co-operative Banks and Non-Bank Financial Companies: The asset quality of scheduled urban co-operative banks (UCBs) improved, whereas, asset quality of non-bank financial companies (NBFCs) continued to deteriorate.
Financial Sector Regulation
The financial sector regulatory reforms in India are being driven by the domestic priorities, within the spirit of the global regulatory standards, even as the challenges in uniform implementation of the reforms are coming to the fore, in many jurisdictions.
Considering that risk taking is inherent and essential in financial markets, the current Indian regulatory stance envisions a balanced, predictable, cycle-proof, institution-neutral, ownership-neutral and technology neutral regulatory regime for the entire financial system.
Banking sector: The policy initiatives for improving the governance and management processes at PSBs, along with a reorientation of business strategy will help improve the performance of PSBs in the long run, even as they presently look to clean their balance sheets in the wake of regulatory impetus.
Securities market: The concerns emanating from rapid rise in algorithm trading in recent years highlights the need for caution for India’s securities markets. Significant regulatory steps have been taken with regard to illegal money-raising activities, insider trading and strengthening the risk management systems at depositories.
Insurance sector: The agricultural insurance needs urgent focus in the wake of frequent episodes of weather related calamities and their impact, particularly on small and marginal farmers.
Commodity derivative markets: There is a need for harmonising the regulation of the physical commodities market and strengthening the linkages between the derivatives markets and physical (cash) markets, mainly in agricultural commodities.
Pension sector: The expected shifts in demography in coming decades call for attention on old age income security in particular for the unorganised sector – for which a new scheme (Atal Pension Yojana) has been announced by the Union Government.
Conclusion: Overall, India’s relatively stronger macroeconomic fundamentals in terms of growth, inflation, current account and fiscal deficits provide a reasonable degree of resilience to Indian financial system in the event of spillover effects from global factors. However, with the continued uncertainty over global growth and in the absence of international monetary policy coordination, there can be no room for complacency.
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