Financial Stability Report

 Relevance: Prelims: Economy

Why in News

The Reserve Bank of India has released the 20^th issue of the Financial Stability Report (FSR).

• The FSR 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 financial system.
• The Report also discusses issues relating to development and regulation of the financial sector.

Key Points

• • Credit Growth
    • Bank credit is the total amount of funds a person or business can borrow from a bank.
    • Scheduled Commercial Banks’ (SCBs) credit growth remained subdued at 8.7% year-on-year (y-o-y) in September 2019, down from 13.2% in March 2019.
    • Private Sector Banks (PVBs) registered double digit credit growth of 16.5% in September 2019.
  • Expected Increase in Gross Non-Performing Asset (GNPA) Ratio
    • SCB’s Gross Non-Performing Asset (GNPA) ratio of banks may increase to 9.9% by September 2020 from 9.3% in September 2019.
    • Public Sector Banks’ (PSB) GNPA ratios may increase to 13.2% by September 2020 from 12.7% in September 2019.
    • For private banks, the ratio may climb to 4.2% from 3.9%, under the stress scenario.
    • Foreign banks’ (FB) GNPA ratio may increase to 3.1% from 2.9% in September 2019.

• All banks’ Capital to Risk-weighted Assets Ratio (CRAR) improved to 15.1% in September 2019 from 14.3% in March 2019, following the recapitalisation of PSBs by the government.
  • CRAR is a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures.
  • It is also known as the Capital Adequacy Ratio (CAR).
  • CAR = (Tier 1 Capital + Tier 2 Capital)/Risk weighted Assets
  • Tier-1 capital, or core capital, consists of equity capital, ordinary share capital, intangible assets and audited revenue reserves. Tier-1 capital is the capital that is permanently and easily available to cushion losses suffered by a bank without it being required to stop operating.
  • Tier-2 capital comprises unaudited retained earnings, unaudited reserves and general loss reserves. This capital absorbs losses in the event of a company winding up or liquidating
• Provision Coverage Ratio (PCR) of all SCBs rose to 61.5% in September 2019 from 60.5% in March 2019 implying increased resilience of the banking sector.
  • Provisioning Coverage Ratio (PCR) refers to the prescribed percentage of funds to be set aside by the banks for covering the prospective losses due to bad loans.

 

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