Context
Recently, the Reserve Bank released the 24th issue of the Financial Stability Report (FSR), which 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.
About Financial Stability Report (FSR)
- The FSR is published biannually by the Reserve Bank of India.
- It reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC), on risks to financial stability.
- It also discusses the issues related to development and regulation of the financial sector.
Key-highlights of the Report
- The gross non-performing assets (GNPAs) of banks are likely to jump from 6.9 percent in September 2021 to 8.1 percent in September 2022 under the baseline scenario.
- While under a severe stress scenario, it is likely to increase to 9.5 percent for the same period.
- Scheduled Commercial Banks have sufficient capital, at the aggregate as well as individual levels, even under stress conditions.
- The report further highlights the collective assessment of the Sub-Committee of the Financial Stability & Development Council (FSDC) on risks to financial stability as well as resilience of the financial system.
- It notes that progress in vaccination on the domestic front has enabled the recovery to regain traction after the debilitating second wave of Covid-19 pandemic.
- However, signs of slowing pace were witnessed more recently.
- Corporate sector is gaining strength and bank credit growth is also improving.
Capital to risk-weighted assets ratio (CRAR)
- Capital to Risk (Weighted) Assets Ratio (CRAR) is also known as Capital adequacy Ratio, the ratio of a bank’s capital to its risk.
- The banking regulator tracks a bank’s CAR to ensure that the bank can absorb a reasonable amount of loss and complies with statutory Capital requirements.
- Higher CRAR indicates a bank is better capitalized.
- The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) have increased to a new peak of 16.6 percent.
- On the other hand, provisioning coverage ratio (PCR) was 68.1 percent in September 2021.
