RBI releases the 29th Financial Stability Report, 2024

Why in the News?

The Reserve Bank of India has released the 29th issue of the Financial Stability Report (FSR).

Key Highlights of the FSR

[1] Global Economic Context

• Heightened Global Risks: The global economy faces significant challenges, such as:
  • Geopolitical Tensions: Conflicts or political disagreements between countries that can affect global stability.
  • Elevated Public Debt: Many countries owe large amounts of money, which can be risky if they struggle to repay it.
  • Slow Progress in Disinflation: Prices of goods and services are not decreasing quickly, which can affect economic stability.
• Resilience: Despite these challenges, the global financial system (how money moves around the world) remains strong and stable.

[2] Indian Economy and Financial System

• Robust and Resilient: India’s economy and financial system are strong and able to handle shocks or problems.
• Banking Sector Support: Banks and financial institutions (like insurance companies) are in good health and are lending money to support economic activities.

[3] Financial Metrics for Scheduled Commercial Banks (SCBs)

• Capital Ratios:
  • Capital to Risk-Weighted Assets Ratio (CRAR): This is a measure of a bank’s financial strength. A CRAR of 16.8% means that for every 100 units of risk, the bank has 16.8 units of capital to cover potential losses.
  • Common Equity Tier 1 (CET1) Ratio: This is a stricter measure of a bank’s core capital. A CET1 ratio of 13.9% means the bank has a strong base of high-quality capital.
• Asset Quality:
  • Gross Non-Performing Assets (GNPA) Ratio: This measures the percentage of a bank’s loans that are not being repaid. A GNPA ratio of 2.8% means that 2.8% of the total loans are in trouble.
  • Net Non-Performing Assets (NNPA) Ratio: This is similar to GNPA but considers the money the bank has already set aside to cover bad loans. An NNPA ratio of 0.6% means that 0.6% of the total loans, after accounting for provisions, are in trouble.

[4] Macro Stress Tests for Credit Risk

• Stress Scenarios and Projections:
  • Baseline Scenario: Under normal conditions, banks are expected to have a CRAR of 16.1% by March 2025.
  • Medium Stress Scenario: Under moderate stress, banks are expected to have a CRAR of 14.4% by March 2025.
  • Severe Stress Scenario: Under severe stress, banks are expected to have a CRAR of 13.0% by March 2025.
• Interpretation: These tests show how banks might perform under different levels of economic stress. They are hypothetical scenarios to ensure banks are prepared for tough times.

[5] Health of Non-Banking Financial Companies (NBFCs)

• CRAR: NBFCs have a CRAR of 26.6%, indicating they are financially strong.
• GNPA Ratio: NBFCs have a GNPA ratio of 4.0%, meaning 4% of their loans are not being repaid.
• Return on Assets (RoA): NBFCs have a RoA of 3.3%, indicating they are making good profits from their assets.